Fair Tax Coalition applauds ‘Expert Panel’ report on business taxation.

Vancouver, B.C. (October 1, 2012) – The Vancouver Fair Tax Coalition (VFTC) today commends the Ministry of Finance’s “Expert Panel on Business Taxation” on its first steps to restore balance and competitiveness to municipal property tax rates. The panel recently released recommendations that will be considered in the provincial government’s pre-budget consultations (www.fin.gov.bc.ca/experts_panel_tax.htm).

Leonard Schein, Director of the VFTC says, “The panel should be commended for proposing a process that benchmarks, measures, and acts upon escalating commercial property tax rates.”

“The panel’s proposed initiative helps counteract any political motivation to shift the tax burden from ‘voting’ residents to business owners,” added Schein. “The new mechanisms, if adopted, would help to improve the economic health of our communities with sustainable, competitive, and job-creating businesses that are not overburdened by municipal property taxes.”
The Expert Panel’s recommendations include the following:

1. 1. Ministry of Community, Sport and Cultural Development should initiate and lead a process for local government and business groups to agree on a set of benchmarks for measuring municipal business taxation.

 

2. 2. The Ministry should measure municipal taxation against these benchmarks and advise municipalities before they make their annual tax rate decisions of where they stand relative to these benchmarks.

 

3. 3. The Ministry should negotiate with UBCM to develop an appropriate action plan for remedial steps to be taken when local tax rates move outside the benchmarked range.

“The expert panel has acknowledged the necessity to develop sustainable economic policy around property taxation,” said Paul Sullivan, Chair of the Technical Committee of the VFTC: “In the City of Vancouver, just under half of the municipal tax budget is paid by some 7% of the properties. Increasing municipal costs are being spread over a relative declining number of commercial properties. The load of property taxation on small businesses and in particular community retail is not sustainable”.

The VFTC looks forward to working with the Provincial Government in bringing fairness and sustainability to tax distribution in British Columbia.

The Vancouver Fair Tax Coalition (www.fairtaxcoalition.com) is a non-partisan group of local business improvement associations, small business owners and managers, industrial and office property owners and developers, and business associations, which represent thousands of local businesses from across the City of Vancouver. VFTC members are concerned about the high municipal property taxes they pay and the inequitable allocation of the tax burden between residential and commercial real estate.

For more information, contact:
Leonard Schein, Director of the Vancouver Fair Tax Coalition, T. 604-644-1901

However, there is no comprehensive plan for our economic sustainability.

A sustainable economy is important and cannot be taken for granted. With a growing population and increased demand for services, it is essential that Vancouver develop a plan for business success and employment.

The VFTC believes the first step for economic sustainability is to form a broadly representative independent task force to examine the opportunities and propose to City Council and Vancouver citizens, an Employment
and Business Sustainability Strategy.

The key question for this task force is: How do we create the BEST Employment City in Canada?

Environmental, social and economic sustainability are intricately linked. A clear business strategy for both large and small business in Vancouver will bring jobs with incomes that can support local residents and provide short commutes to work.

Tenants and business owners are becoming a taxation “hot spots” where year-over-year increases in assessments cause profound increases in property taxes. These are far beyond the average for the class of property.

Cambie Street is a vibrant, successful, diverse business area with many independent neighbourhood employers. Tax increases or spikes will make the area unaffordable for most neighbourhood retailers and businesses. The sudden change in value “mid lease” can prove catastrophic for a small business owner who has little ability to increase revenues to offset the increased expenses. The business owner risks business failure and can only respond by cost cutting, the most frequent is employee cutbacks.

This is a crisis situation and without intervention the carnage from the Canada Line construction will be experienced again. How the transition period for redevelopment is handled is critical to the survival of our neighbourhoods as residents in the area know.

The “hot spot” scenario is a common occurrence in Vancouver because of rapid development and speculation. Cambie is not the first neighbourhood to experience catastrophic tax increase. Many other
neighbourhoods, such as Yaletown, Kerrisdale, and Hastings Sunrise have been victims of “hot spots” and many others will be in the future.

A solution to the devastating effects of “hot spots” are available but it is necessary to acknowledge the problem and show the political will to resolve the problem while neighbourhoods go through development transition.

Facts and Additional Information

· A “hot spot” is when the employer/tenant is paying commercial tax rate on residential properties that do not yet exist.
· Sudden tax increases pose serious problems for neighbourhood businesses. The increases are unanticipated and have no relationship to an improvement in business.
· The tenant of a commercial property is responsible for all expenses associated with the use of the property occupied. The major portion of those costs is property taxes.
· With the Canada Line operating and the city considering increasing allowable density along the Canada Line many residential properties and some commercial properties are being bought by speculators. This is causing a massive “spike” or jump in the assessed value of properties along Cambie Street. As a result, employers (tenants) will be seeing double digit increases in their property taxes for the next several years – even with the use of Averaging as a buffer.
· The jump in assessed values has taken place even though the City has not rezoned any of the properties on Cambie Street for increased density.
· The BC Government has introduced new legislation (Bill 15) for the City of Richmond allowing them to protect businesses along the Canada Line from these unprecedented jumps in their property
taxes. This legislation could be used by other cities. Richmond has adopted this legislation to protect its employers. The City of Vancouver has not.

Employment is essential to the economic health of citizens. Although commercial property taxes are the responsibility of landowners, the taxes are paid by employer tenants and directly effect the profitability and growth of the business sector.

Vancouver city data clearly points to a stagnant or declining business base that is not keeping pace with population growth. The concern is that we have poor employment prospects ahead, especially for our youth. The current trend is unsustainable.

Vancouver’s employment sector needs to grow, not just for employment but to sustain the tax base of the city of which businesses pay a large share. Under our current property tax regime, a shrinking commercial
tax roll means fewer businesses are paying ever-increasing property taxes.

As the population in Vancouver increases, it is essential to retain existing businesses and to increase the number of businesses. Continuing to shift taxes provides a clear signal to both existing and new businesses
that Vancouver is a good place to locate and expand.

Facts and Additional Information

Note: all data is based on official City of Vancouver and government information

· An annual 1% tax shift will cost the average residential taxpayer $33 per year, or about 64 cents per week, less than a cup of coffee.

· Attracting and retaining businesses is competitive. Every municipality wants to increase employment and their commercial tax base. Vancouver competes with other municipalities in Metro Vancouver where employers pay an average of 34% of the tax levy compared to 47.5% in Vancouver. Vancouver must be closer to parity.

· The net number of business licences issued by the City of Vancouver over the last 13 years (1998 to 2010) has only increased by 46 while our population has increased by 83,267 during this same period.

· In the last 7 years (2005 to 2011) the number of commercial properties built in Vancouver has increased by 215 while during the same period, the number of residential properties built has increased by 23,789.

· Residential properties make up 83.4% of the assessed value, employer properties make up 15.9% of the assessed value, and yet employers pay 47.5% of the property taxes.

· Property taxes for commercial properties are paid by the tenants, not the commercial property owner. Most of these tenants are local neighbourhood merchants and businesses that create and provide jobs close to home.

· Employers recognize they should be paying higher property taxes than residential property owners, but the system is out of balance. It is no longer fair, reasonable or sustainable. Currently commercial property owners pay 450% higher for the same assessed property. For example: a residential property owner with an assessed value of $1,000,000 will pay $4,180 in municipal property taxes while the employer tenant will pay a disproportionate $18,664

by Don Cayo, Vancouver Sun  October 24, 2011

From 1998 to 2010, the city of Vancouver enjoyed a net increase of 83,267 new residents and 50,973 new homes — but added just 46 new businesses.

Indeed, Vancouver’s 50,666 business licence numbers in 1998 actually declined slowly and unsteadily until 2007 when they reached their nadir of 46,555. Then they crept back upwards to 50,712 — 0.09 per cent higher than where they started 12 years earlier.

Meanwhile, the number of business licences in Metro Vancouver increased by 24,530 — a respectable 21 per cent, or 230 times faster than in the city of Vancouver. Surrey alone recorded a net gain of 5,571 new licences, and Langley Township 4,268.

The number of business licences doesn’t necessarily equate directly to the number of jobs in the city, and Vancouver’s employment figures are growing somewhat faster than the number of business licences. Because even though some new business licences are for tiny operations — for example, 30 new street food carts were recently approved — the city still has a lot of big employers (although some of these, such as banks, for example, must have a separate licence for each location).

But data from the 1991 and 2001 censuses — the 2011 figures are not yet released — show that Vancouver, though still considered the core of the Metro area, is rapidly losing its regional preeminence as a place where people can find work. As far back as 2001, both Richmond and Burnaby had surpassed Vancouver’s ratio of jobs to workers. Since then, of course, both Surrey and Langley have come on strong.

The decline in the number of licences issued for Vancouver’s businesses started under former mayor Philip Owen’s Non-Partisan Association administration, and continued under former mayor Larry Campbell and his Coalition of Progressive Electors colleagues. It began to turn around under former mayor Sam Sullivan and the NPA, and the slow improvement has continued under Mayor Gregor Robertson and his Vision council.

But Coun. Susan Anton, the NPA mayoral candidate in the Nov. 19 civic election, blames Robertson for driving businesses out of Vancouver with too much red tape.

“Gregor has put some of the cold chill in these things,” she told my colleague Jeff Lee. “The quote I hear in Surrey is that Gregor is Surrey’s best friend.”

Robertson, on the other hand, points out that there has been some business growth under his tenure, and he credits the much faster pace of suburban growth to a variety of factors that all boil down to costs.

Paul Sullivan, a partner in the property tax consulting firm Burgess Cawley Sullivan and the co-chair of the Vancouver Fair Tax Coalition, also identifies costs as a problem, and he specifically fingers the disproportionately large tax burden carried by Vancouver businesses. What causes this problem is that an ever-higher city tax levy is split each year according to a pre-determined formula that has nothing to do with how much it costs the city to provide services to different groups of taxpayers, or how much these groups can afford to pay. And what results is that residents get to divide their portion of the total tax bill among evermore properties, which helps moderate their individual tax increases. Meanwhile, with the number of businesses in the city stalled and their total levy steadily rising, individual bills for commercial properties tend to soar.

The total assessed value of a business property — the land and building combined — in Vancouver is based on what the assessor thinks the space could be rented out for if the lease had been renewed last July 1, the date on which all assessed values are based.

But the value of just the land where this premises sits is based on what the assessor thinks it could have been sold for last July. And the value of the building itself is completely arbitrary — it’s whatever’s left over when you subtract the sale-based value of the land from the rent-based value of the entire property.

If you think that’s a little bit complicated, you’re only beginning to understand. Because the implications rapidly become head-hurtingly convoluted.

Land prices often change much more rapidly than rent prices. So it’s common when new assessment figures come out for the land value to have shot up a lot but the total assessed value to have risen only slightly or stayed the same. This means, of course, the arbitrary value assigned to the building has dropped.

For example, when land with a ho-hum structure — say an older parking garage —is zoned for a higher-end use like an office or a residential tower, the deemed value of the structure may be deemed to be next to nothing. Or a structure that used to be deemed to be worth quite a bit may suddenly plunge if the zoning changes and the land value soars.

If the assessment total — which is what the tax bills are based on — doesn’t change, you might think this wouldn’t matter. But it does.

The reason is that the taxable land value is determined by averaging the values for three years, but the total value is not adjusted in any way at all. Thus, when land values are rising steeply, factoring in the lower prices of the past three years means the taxable value is dragged down. This is particularly helpful to a business taxpayer when the land constitutes the lion’s share of the total value.

But what happens when — as was the case last year — land prices go down? The arbitrary value of the building shoots up to compensate and ensure that the total assessment stays the same. Then, when the land prices from the past three years are factored in and added to the much larger current value of the building, the total is driven higher than it would have been without averaging, not lower.

Last year there were many Vancouver businesses that got hammered with 30-40 per cent increases in taxable value because of this phenomenon.

To it’s credit, city council did do some tinkering last years to ease the problem for some — but not all — of the businesses that were at risk of being hurt by a policy that had been intended to help them. They removed a significant group of them from averaging for one year only.

But the averaging policy comes up for renewal annually. It will take a detailed analysis of the business tax roll to figure out if any, or many, businesses will be similarly hurt by the policy this year, but in a volatile market it’s a very real possibility.

Given the serious problems that flowed from averaging last year, I think it’s time to entirely rethink the policy.

© Copyright (c) The Vancouver Sun

by Ed Des Roches and Bob Laurie, guest columnists, Special to Vancouver Courier.  November 17, 2010

It is clearly time to take politics out of taxation discussions, something Tom Sandborn fails to do in his Nov. 9 column “City’s tax burden policy could be the new HST.”

Unfortunately, most property tax policy is mired in detail, complexity, and as a result, difficult to understand–but easy to condemn. Mr. Sandborn’s article and many like it are short-sighted, overly simplistic, factually incorrect, and ignore some important fundamentals.

In Vancouver, our elected political leaders have openly recognized the historical unfairness and imbalance between residential and business property taxes. Past and current councils have supported a gradual correction with an annual tax shift between property classes. This is smart policy. At considerable political risk, Mayor Gregor Robertson and the majority of city councillors have taken a principled stand which will clearly benefit all Vancouverites.

Important facts we all need to remember about Vancouver property taxes:

The “shift” is not a grant or a tax freeze on business taxes. The shift is an effort to redistribute taxes broadly between property classes. It is a gradual shift of one per cent of the total property tax bill paid by all commercial property owners. Let’s keep this in perspective. A one per cent shift of the tax burden was $5.68 million in 2010. Even with the shift, city budget increases meant that property taxes still went up for most commercial properties.

Property tax is not taxing a business’s profit. Most business owners are renters! Property tax has absolutely nothing to do with income of the corner grocery, your favourite coffee shop or credit union. Property tax is based on the value of the property owned by a commercial property owner, just like it is for a residential property owner. Property tax inequity has reached a serious imbalance. Commercial property owners who represent eight per cent of Vancouver’s property tax base are paying 50 per cent of the property taxes.

For every dollar of city services consumed, businesses pay $2.42 and residential taxpayers pay 56 cents. This means residents are receiving city services at almost half their actual cost.

Economic sustainability is as important as social and environmental sustainability. We can’t have the “greenest city” in the world without a strong economy and growing commercial tax base, which underwrites necessary social programming. This means healthy, vibrant and growing employers who keep jobs in our city close to where we live.

Fundamentally, the tax shift is all about jobs and economic sustainability in the future. We have a growing population and a younger population that needs employment opportunities in our city, not an hour commute elsewhere.

All taxpayers share a common concern–spending and value. Residential and business taxpayers pay more taxes resulting from annual increases in city spending. Is the spending justified? As taxpayers, are we getting the best value for our tax dollar?

Discussion and debate on the merits and impact of municipal tax policy changes and city spending should be encouraged, but without the rhetoric and emotion.

Ed des Roches and Bob Laurie are co-chairs of the Vancouver Fair Tax Coalition.

© Copyright (c) Vancouver Courier

Published: Thursday, October 28, 2010

The City of Vancouver has invited citizens to give their opinions on how to deal with its anticipated $20-million budget shortfall in 2011. We welcome Mayor Gregor Robertson’s efforts to cut costs and his invitation to join him in finding solutions. At the risk of sounding jejune, may we suggest spending less?

Take note that we don’t mean slowing down the rate of growth of spending, but making real reductions in spending. This has to be spelled out because politicians don’t seem to be able to grasp the difference.

Budget documents reveal that the city’s operating expenditures have soared by 68 per cent since 2000, from $610.9 million to an estimated $1.026 billion in 2011. That’s more than double the rate of inflation (22 per cent) plus population growth (10 per cent) over the past decade.

It’s also an increase of $60.2 million over last year, of which $34.9 million will fund a four-per-cent increase in salary and benefits for the city’s 6,000 workers.

These wage gains are far in excess of those in the private sector, or the provincial and federal governments, where zero-increase contracts have become the norm.

Moreover, in 2007, only 5,123 people, excluding temporary and auxiliary staff, worked for the city. No wonder the city had to spend $48 million to find space for all the additional employees on top of relocating existing staff during costly renovations at city hall, including $1 million to refurbish Robertson’s office.

The mayor has said his goal is to hold the property tax increase in the coming year to two per cent. In the same breath, he exempted four “priorities” — affordable housing, the environment, public safety and arts and culture — from any cuts.

When Robertson first met with The Vancouver Sun editorial board as a candidate for mayor in the fall of 2008, he said he agreed with the dictum that you can always find five-per-cent fat. These so-called “priorities” should be subject to the same cost-saving exercise as every other sector. Besides, as every manager with budget responsibilities knows, you hunt where the ducks are.

Consider the impact of irresponsible financial management by successive city councils. The city spends more now servicing debt than it does on libraries. It should be noted that libraries were not mentioned among Robertson’s protected services. Last year, council tried to cut the Vancouver Public Library budget by $1.5 million, but was forced to restore most of that funding because of the public backlash. Clearly, the citizens of Vancouver would make different budget choices than council does.

While some of city council’s “green” initiatives may have public support, too many carry excessive costs. The 2.4-kilometre Hornby bike lane will cost $3.2 million; by comparison, Montreal is laying down 51 kilometres of bikeway, including nine kilometres of repaving, for $9.9 million.

The business community fears, with reason, that the Vision-dominated council will renege on its commitment to shift one per cent of the tax levy each year from non-residential to residential property in order to meet its target of a two-per-cent tax increase. Such a move would deepen suspicion that the council is insensitive, or at worst hostile, to the needs of business.

The city recently hired Amanda Pitre-Hayes as the new director of sustainability charged with overseeing the “Greenest City Action Team,” a six-figure salary job for which she is well-qualified given her background in climate-change consulting and carbon offset programs.

But what Vancouver City Hall really needs is a director of budget sustainability because annual spending increases of 20 per cent or more, and the inevitable tax hikes to finance them, are — to put it in a word this council should understand — unsustainable.

by Jeff Lee, Vancouver Sun  October 19,2010

VANCOUVER – Vancouver city should scrap its policy of shifting taxes from the commercial sector to residential taxpayers as it looks for ways to make up a $20.6 million budget gap, two councillors said Tuesday.

David Cadman and Ellen Woodsworth, both members of the Coalition of Progressive Electors, said they oppose a program by the city of annually transfering one per cent of the tax rate from commercial classes to residential classes.

That policy was brought in two years ago following the recommedations of the Property Tax Policy Review Commission, which said the city is best served by having property taxes made up 52 per cent by residents and 48 per cent by businesses. The review came after businesses complained they made up a disproportionate share of the tax base, up to 60 per cent.

This year city staff have recommended continuing the gradual one per cent shift from the business sector, which translates into a two per cent increase for homeowners. But as the city struggles to find ways to close the $20.6 million gap in the 2011 budget – equivalent to a 3.6 per cent increase across the board – both Woodsworth and Cadman say the business tax transfer should stop.

Their views were rejected by the Vision Vancouver-majority council.

But the amount of money council must cut from its departments may actually be smaller than anticipated. Last week Vision Vancouver Mayor Gregor Robertson said he wants to hold a general tax increase to two percent, meaning the gap is closer to 1.6 per cent or about $9 million, according to Coun. Raymond Louie. He said that gap is still significant but more achievable as the city looks for more efficiencies.

The public will learn on Nov. 30 how the city is planning to meet the entire gap and what options are available. But they won’t get to take their concerns to council until a special meeting on Dec. 2.

City Manager Penny Ballem said the budget would have been worse but for two major improvements: an unexpected $8.3 million increase in development fee revenues which she attributes to a slowly recovering economy, and about $10 million in annual savings from the multi-year Vancouver Services Review program, which is looking at how to transform city operations into leaner, more efficient departments.

“We have to look for $20 million. That’s a lot of money and we are looking all across the organization. It will be hard work and it will have to be thoughtful,” she said. “I think the biggest challenge for us to continue to work on the VSR so that we can continue to transform because that actually really helps us figure out how we can do things differently rather than cut services.”

jefflee@vancouversun.com

by Jeff Lee, Vancouver Sun September 28,2010

WHISTLER – The provincial government has shelved a proposal for tax relief for communities heavily dependent upon industries, saying the cost implications are significant.

The decision, made public at the Union of B.C. Municipalities convention, was greeted with anger and unhappiness by mayors of small and medium-sized municipalities who have faced a tax revolt from large industries who refuse to pay their property taxes.

In the 2010 Throne Speech the provincial government promised to work with local governments to come up with an equitable formula for industrial taxation in communities where a single industry makes up a significant portion of the tax base.

But on Tuesday, a UBCM panel said a proposal it drafted that would see the province kick in between $17 million and $42 million annually to resource-dependent communities over the next 10 years in return for lowering or getting rid of their Class 4 industrial tax rates had been politely shelved by Victoria. Under the proposal, as many as 32 of the 76 communities with Class 4 tax rates would voluntarily declare themselves “industrial communities”. But industry representatives wanted the classification to be mandatory, fearing a patchwork of communities across B.C. with varying tax systems.

“We did get a response, which essentially says the ideas we presented were very carefully considered,” said Kelowna Coun. Robert Hobson, the chair of the UBCM industrial taxation committee.He read from a letter he received from Finance Minister Colin Hansen this week:

“Our recommendations have significant financial implications for the province and will require consideration as part of 2011 provincial budget process.:” I guess I would take that as not being a yes but also not being a no.”

The decision is a bitter blow for municipalities that have been boycotted by industrial taxpayers, who complain they pay an unreasonable share of municipal taxes.

Last year pulp mill owner Celgar refused to pay its taxes to Castlegar, threatening a court fight. In Port Alberni and Nanaimo, paper companies Catalyst and Harmac also held back on paying millions of dollars in assessed taxes. Several of the cases are still before the courts.

Port Alberni Mayor Ken McRae said the province’s decision was a blow, and urged the UBCM to continue pushing for tax relief. The city had the province’s first sawmill 150 years ago, and “has sent hundreds of millions of dollars” to Victoria in taxation.

“We’re not here for a handout. We’re just here for a fair share,” he said.

jefflee@vancouversun.com