For the Information Session hosted by the Ministry of Finance
Kenora, Aug. 19, 2008
Longbow Lake
Although this is an information session on the government’s plan
for changes to the Provincial Land Tax system, I hope the government
is still open to suggestions for changes, and critiques of
the implementation. I am a property owner in the unincorporated township
of Kirkup, District of Kenora and have been a year-round resident there
since 1992. The property has been in our family since 1971, so I am
very familiar with the needs and issues surrounding living in
an unincorporated area. I work for the local newspaper — the Daily Miner
and News — and have written extensively on tax issues for over 30 years
involving local school boards, municipal councils and unincorporated
townships. And I am a trustee for our
local roads board — the Storm Bay Roads Board. I also write on tax and
other government issues for a regional property owners’ magazine — The
Area News — that is published by the Lake of the Woods District Property
Owners Association, which has a membership of over 4,000 seasonal and year-round
residents in the Lake of the Woods area. While people generally don’t like
paying taxes, most recognize the need for them and in truth take no issue
with taxes being levied, as long as it is done in a fair and logical way. And that — fairness and logic — is the crux
of what was wrong with the government's land tax system previously in
place in unorganized townships and districts. Property owners received multiple bills, no one really knew what
the taxes were going for, nor understood how they were determined. The system
had been in place for over half a century with virtually no changes. But
since the dollar amounts involved were minor — except in the case of
education tax bills — taxpayers seldom expressed real or vocal concern.
And because the number of taxpayers and properties involved were small —
currently 69,000 out of 4.7 million properties — fixing things was not a
high priority for the government.
2/
Nonetheless, the system was mess, made no sense, was unfair, and wasn’t
delivering sufficient dollars to offset the costs of service being
provided at present and needed changing. I attended the ministry’s first round
of consultations on PLT reform in 2004 as a representative of my local
roads board. Having received Finance
Minister Dwight Duncan’s Open Letter to Property Owners last week,
outlining the government’s plans for completing the move to Current Value
Assessment for the PLT system, I must say I am very upset and deeply
saddened — at the same time and for the same reasons. When the government
passed Bill 151 in December of 2006 — an omnibus budget measures bill
stemming from the 2006 budget, it included a revamped Provincial Land Tax
Act. The measures outlined laid a solid and reasoned groundwork for a new
system, pending passage of various regulations required to implement the
bill. Many of the concerns raised in the 2004 consultations appeared to
be addressed. Now, the ministry’s plans for implementation appear to
ignore the bulk of the issues discussed and concerns raised by those living
in or representing those owning property in unincorporated areas. Not only
concerns raised at the consultation meeting I attended in Kenora, but
based on the summary sent to all participants after that round of meetings
and published on the ministry’s website, on the general feelings of all
those with an interest in the issue across the North. Key concerns and
requests were that Local Roads Boards and Local Service Boards continue to
be allowed to deliver their limited and selective local services —
primarily local roads, community fire protection, communal water systems
and community recreation — as they had always done and bill their property
owners directly for those services with an option of having the ministry
collect those taxes for them. Everyone said they’d be pleased to get a
single itemized tax bill. Those seem to
be recommendations the ministry acted on, as they were included in the
Provincial Land Tax Act 2006.
3/
Other concerns —bringing all property owners to a fair level of taxation
for the services being funded, making the system understandable, providing
some mechanism for a phase-in if taxes are going to rise substantially —
are noticeably missing from the implementation plan. As is the elephant in
the room — why 22,000 property owners in a province with over 4.7 million
property owners continue to be sheltered from paying education taxes,
despite it being a long standing government policy and a general public
belief that ALL property owners contribute to education costs. The Ministry
of Finance says it is a Ministry of Education affair, but for the vast
majority of property tax payers the fact some don’t pay education taxes is
a glaring example of tax unfairness and government disinterest in plugging
what amounts to a tax loophole. Rectifying it, quite frankly, would only take a
few clauses or paragraphs in an annual budget measures bill.
That, that has not happened since education financing was revamped
a decade ago is simply indefensible.
But that is not the nub of the problem with the current PLT reform plan.
The key issue is tax fairness, and the government plan fails completely on
that point. Under the interim provincial service tax system put in
place following the 1998 province-wide property tax changes, the
majority of those in school board tax areas outside of municipalities
began paying more for the provincial services they were receiving through
a combination of the interim tax, and the Provincial Land Tax. In many
cases they were picking up their ‘fair share’ of the costs of social
support programs, public health, land ambulance, roads and policing as
envisioned by the 1998 property tax changes.
One-third of PLT properties, about 22,000 outside school tax
areas, as well as hundreds commercial and industrial properties
within school areas, were exempted. In simple words, they weren’t required
to begin paying their ‘fair share’.
Under the ministry’s current plan they still won’t.
4/
But it gets worse. Those who were paying their ‘fair share’ could now have
their taxes increased substantially due to higher rates (the .0023 maximum
rate exceeds the current interim service rate in 23 of 30 education tax
localities across the northern districts, in several areas by a factor of
10 times). Combined with higher property valuations from the province-wide
re-assessment to 2008 values from 2005 values, it will in some cases
double or triple what property owners now pay for provincial services.
Meanwhile, those who weren’t paying their 'fair share' will generally have
no increase or a decrease when the new, non-school board area PLT rate of
.0001 is applied to the 2008 valuations.
Plus the minimum tax payable of $6, in place for decades, remains. No rational person, whether involved in
government finance or outside of it, can tell anyone that $6 a year in any
way reflects any share of the costs of providing even one of the seven
provincial services
the PLT is to help fund. In this day and age, $6 doesn’t even cover the cost of
preparing and mailing a tax bill. There was another concern raised at the
2004 consultations, at least at the meeting I attended. That was a strong
desire for the government ‘to get it right the first time’. That there not
be endless rounds and years of changes and revisions as has
happened with the general, decade-long implementation of Current
Value Assessment, social and health service funding transfers and
the setting of standardized province-wide education rates. Hopefully there
is still time to ‘get it right’ as the new system doesn’t take effect
until the 2009 tax year. What should be
done?
First, scrap the idea of two tax rates determined by school
board boundaries. Those boundaries
were developed decades ago and reflect an education funding system that is
long gone. I covered our local school boards in the 1980s as a news reporter.
The question of boundary changes was a frequent topic as the boards sought
additional revenues — any move to extend or change boundaries outside of
municipal borders was always driven by simple, financial self-interest.
5/
If the tax dollars to be collected exceeded the estimated costs
of educating any children in an area, the board was more than willing
to extend its boundaries. If it didn't, the board didn't want the
area as the government paid 100 per cent of any costs associated
in transporting, boarding and educating children from those areas
— representing a significant savings for local tax payers who
funded about half of education costs at the time. Demographics have
changed and population numbers have shifted since then. Development has occurred.
Millions of dollars in property assessment are available in areas where
little or none was before.
Education funding itself has changed, with the province providing
the balance of funds the provincially-set education property tax
rates don't. The education
boundaries no long reflect the current delivery or funding of education
services, and most certainly have no connection to local roads, policing,
land ambulance, public health or social services. If there are to be
multiple rates under the new PLT system they should reflect the
availability of those services.
Everyone requires and uses policing services, so those costs
should be co-funded by everyone. Everyone uses public health services, even the
most remote of properties. If part of the funding for public health units
is to come from the property tax base, every property owner should
contribute. A logical argument can be made that social services (child
care, income support programs and public housing) and land ambulance are limited
by the boundaries of district social service administration boards, so
properties outside of those boundaries could be exempted from cost-sharing
those services. An argument can also be made that local roads funding should
be limited by some geographic boundaries, but that could be
problematic as there 282 Local Roads Boards across Ontario and several
hundred different service tax rates in the PLT system would run counter
to simple, clear tax system. If
there are to be multiple rates within property classes, then district
service board boundaries should be used.
Either two rates — one for properties within a service board and
one for those outside, or 12 different rates across the North. Eleven
for the 11 different service boards and one rate for those outside. In fact different rates for different
districts across the North would actually help address a major
short-coming of the Current Value Assessment system — wide variations in
residential market values that result in wide variations in taxes paid
when a single tax rate is applied.
6/
The interim service tax in some ways addressed this, as it was linked to
locally-set education tax rates in place before 1998 which reflected local
current market values. For instance, in
existing school board areas average residential valuations can vary from
$50,000 to $150,000 or more for similar properties.
Whether it is a .00264 province-wide education rate, a .0023 provincial
service rate, or a .0001 service rate, it means one owner pays three times
what the other does for essentially the same services.
Second, is the treatment of various property classes. When the government passed its Provincial Land Tax reform
legislation in December of 2006, it included provisions for directing
tax revenues from hydroelectric generation, utility and railway
right-of-ways towards funding the PLT services. Based on the four
property classes in the current plan — residential / farm and
managed forests / commercial / industrial — it would appear the
government intends to retain those substantial revenues for general
provincial use. That goes directly
against the desire, and an often-repeated government pledge, that revenues
raised in the PLT areas would stay in the PLT areas to fund services
there. And within the property classes the tax rate ratios for
commercial and industrial properties in three of four cases far exceed to
the government’s own guidelines established for municipalities. At the
very least I would expect the government to adhere to its own 6 – 1.1 tax ratio
guidelines for industrial and commercial property classes. In fact, since differing property assessment
formulas for the residential/commercial/industrial classes reflect to a
large degree their differing natures, I would suggest a single rate for
all three classes.
Finally, what should that rate be?
It has to help fund and be linked to the costs of the services
of course. Those costs in 2006
were about $43 million in total — the dollar figures were provided by the
various government ministries and agencies involved at the time and will
have increased somewhat due to inflation over the past three years.
7/
Tax dollars are raised under the Current Value Assessment system
by multiplying the tax rate by the assessed value. The total assessment in the PLT area, based
on Municipal Property Assessment Corporation 2005/2006 numbers for the 30
School Board Localities, extrapolating for non-school board areas and
estimating for increases to the
2008 values, is now likely in the range of $10 billion. The Municipal Property Assessment
Corporation which did the valuations, and I’m sure the Finance Ministry by
now, have the exact figure. That
would make for a rate of .0043 ($4.30 per $1,000 of assessment) — quite
high for the package of services being provided. But the government provides
substantial general revenue support for property owners in incorporated
municipalities through various means and grants to offset high tax rate,
low available assessment situations. I’d expect them to do the same in
unincorporated areas. I’d suggest a
residential tax rate of .001 to .0015 ($1 to $1.50 per $1,000 of assessed
value) would be in line with what property owners in Ontario’s small,
rural organized municipalities pay as their share towards social programs,
land ambulance, policing and public health. Local roads costs, while
higher on municipal bills, when considered for PLT areas must reflect the
fact that property owners in Local Roads Boards areas already fund 50 per
cent of those costs through direct taxation by those boards and will continue
to do so.
Finally, property owners in unincorporated areas deserve the
same consideration as those in organized municipalities.
Government legislation guarantees them a four-year phase of any
assessments increased for 2009-2012. Whether the increase is from 2005 to
2008 values, or from 1942 to 2008 values, there must be a phase-in for
PLT assessment increases. Because of the dollars involved — $43 million
represents a fraction of a percentage point in the Ontario government’s
multi-billion dollar annual spending; and the numbers — 69,000 out of 4.7
million properties; there is plenty of fiscal room to phase-in increases,
or to provide special support grants where needed. If four years isn’t deemed sufficient for
those now paying only the old PLT tax, the government could consider a
10-year phase-in for the new PLT and education taxes so that all northern
property owners are treated fairly.
8/
In conclusion, the tax rates and property class divisions to implement
Current Value Assessment and the Provincial Land Tax Act 2006 as now
proposed by the Ministry of Finance are badly flawed, but they can be
fixed. The government has the time and
the fiscal capacity to get this right.
It has the resources to develop and implement a tax system that
is fair to all property owners and reflects a reasonable sharing
of costs in unincorporated areas across the North.
Bob Stewart