FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
STATEMENT BY THE MINISTER AND RESPONSES
ONTARIO HOTEL AND
MOTEL ASSOCIATION
HOTEL ASSOCIATION OF METROPOLITAN TORONTO
SOUTH ROSEDALE RATEPAYERS' ASSOCIATION
ONTARIO PUBLIC SERVICE EMPLOYEES UNION
CANADIAN PROPERTY TAX ASSOCIATION
CONTENTS
Monday 7 April 1997
Bill 106, Fair Municipal Finance Act, 1997
Statement by the minister and responses
Mr Ernie Eves, Minister of Finance
Ministry briefing
Ms Marion Crane, director, tax design and legislation
Mr Tom Sweeting, director, taxation policy
Ms Elizabeth Patterson, assistant deputy minister, property assessment
Ontario Hotel and Motel Association; Hotel Association of Metropolitan Toronto
Mr Rod Seiling
South Rosedale Ratepayers' Association
Ms Tanny Wells
Ontario Public Service Employees Union
Mr Will Presley
Mr Ed Faulknor
Canadian Property Tax Association
Mr David Fleet
Mr Barry Remington
Regional Municipality of Peel
Mr Emil Kolb
Mr Michael Garrett
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
Ms IsabelBassett (St Andrew-St Patrick PC)
Mr JimBrown (Scarborough West / -Ouest PC)
Mr TedChudleigh (Halton North / -Nord PC)
Mr JosephCordiano (Lawrence L)
Mr Douglas B. Ford (Etobicoke-Humber PC)
Mr TimHudak (Niagara South / -Sud PC)
Mr MonteKwinter (Wilson Heights L)
Mr TonyMartin (Sault Ste Marie ND)
Mr GerryMartiniuk (Cambridge PC)
Mr GerryPhillips (Scarborough-Agincourt L)
Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. DouglasRollins (Quinte PC)
Mr JosephSpina (Brampton North / -Nord PC)
Mr WayneWettlaufer (Kitchener PC)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 1303 in room 151.
FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
Consideration of Bill 106, An Act respecting the financing of local government / Projet de loi 106, Loi concernant le financement des administrations locales.
The Chair (Mr Ted Chudleigh): I call the meeting to order. Welcome to the standing committee on finance and economic affairs, back in session. Today we're here to consider Bill 106, An Act respecting the financing of local government. We have with us today the Minister of Finance, the Honourable Ernie Eves, who will be making a statement to the committee.
STATEMENT BY THE MINISTER AND RESPONSES
Hon Ernie L. Eves (Deputy Premier, Minister of Finance): Mr Chairman, committee members, it's a pleasure for me to be here today to make some brief introductory remarks -- they may not turn out to be so brief -- as we begin public consultations on Bill 106, the Fair Municipal Finance Act, 1997.
What I would like to do today is tell you about the problem with property assessment in Ontario, why the problem needs fixing and what the changes we're proposing in Bill 106 will do to fix the problem as well as create a fair property tax system for everyone in Ontario.
With this bill, we have taken up the challenge of fixing a property tax system that in many parts of the province is out of date and unfair. Numerous commissions and studies have looked at property assessment over the last two decades, yet previous governments of all three political stripes have failed to act to bring fairness into the property tax system across Ontario. Because those governments failed to act, thousands of homeowners and businesses have been paying more property tax than they should be.
I understand other governments' reluctance to take up this challenge. It is a difficult and sometimes charged issue. But we know what the government is proposing in Bill 106 is the right thing to do. We aren't the only ones who are saying that the system needs to be changed; thousands of Ontarians who pay more than their fair share of property tax are saying the same thing.
What's wrong with Ontario's assessment system the way it is now? Quite simply, the system we have now is grossly unfair. It is unfair to the working family of four who are trying to make ends meet and pay off their new town house, only to discover that they are paying twice as much tax on their home as their neighbour down the street pays for an identical home. It is unfair to the farmer whose cash is tied up in a farm tax rebate and can't use it to invest in new machinery to increase his crop yield. It is unfair to the owner of a family business who wants to hire an additional assistant but can't because her income is being drained by unfairly high assessments. It is unfair to municipalities, which right now don't have the flexibility and the powers they need to tax fairly and in ways that meet their local priorities. It is unfair to the taxpayer who has to pay more tax because municipal revenues are being drained by thousands of unnecessary appeals generated by an outdated assessment system.
How did the system get to be so unfair? The chief problem is that assessments haven't been updated consistently throughout the province. In Ontario today, assessment values of properties are based on years that range from the beginning of the Second World War all the way to 1992. Basing property taxes on such widely different assessment years is like basing one person's income tax on what they earned in 1940 and another person's income tax on what they earned in 1997. It just doesn't make sense, and it isn't fair.
Of the 3.8 million properties in Ontario, more than two million have assessments that are more than a decade old. In other words, about 53% of properties are owned by people who are paying taxes that don't bear any resemblance to the value of their property. Some have been paying too little, some have been paying too much, and this is happening because their properties haven't been assessed recently; in some cases, in more than half a century.
Here's another way to look at this: Almost 64% of Ontario's $745-billion assessment base -- that's the estimated dollar value of all properties in Ontario -- is based on property values that date from 1984 or earlier. Here are a few examples: In Metro Toronto, assessments are based on 1940 property values; Trenton also uses 1940 property values; in Oshawa, assessments are based on 1950 values; Markham, Vaughan and Richmond Hill use 1967 values; Kapuskasing uses values from 1968; in Elliot Lake, assessments are based on 1972 values; Belleville and Peterborough are using 1975 values, and so on across the province of Ontario.
I can tell you what happens when property assessments are not kept up to date. Here are some actual examples of taxes paid by homeowners in communities across the province. Two semidetached houses on the same street in Cabbagetown sold for $310,000 in 1996. One family pays about $2,400 in property taxes. Their neighbour, living in a house that's virtually identical, on the same side of the same street, getting the same services, pays $1,300. That's a difference of more than $1,000 in taxes, money that family could use to pay off their mortgage or buy new appliances for their home.
Here's another Toronto example. Two very similar houses on the same street both sold for about $295,000, yet one family pays $1,100 in property tax while their neighbour across the street pays $3,200. That's nearly three times as much, and no one could possibly guess, by either looking at these houses or comparing their sale prices, why people are paying such unfairly different rates of tax.
But the fact that it doesn't treat people fairly is not the only thing that's wrong with the present system. The present system of assessment and tax is so complex and confusing that it's difficult for property owners to figure out why they're paying what they're paying. Here's an example of what you might find on your assessment notice or on your tax bill right now in some communities.
If you're in a municipality that has been reassessed by property class, you multiply the value of your property by the class factor -- that's the old assessment of the class -- divide that by the new market value of the class, and that will give you the assessed value. Multiply that by the mill rate and you'll finally arrive at what you owe in property tax.
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If your municipality hasn't been reassessed recently, it gets even more complicated. Take the value of your property and multiply it by the neighbourhood factor, which is based on the value of similar properties in your neighbourhood. That gives you the assessed value of your property, which bears no resemblance to what your property is actually worth. That, times the mill rate, equals your property tax.
If you find this confusing, you're not alone. Thousands of other taxpayers across Ontario scratch their heads every time their tax bill or assessment notice lands in their mailbox.
Not only is this system unfair, it is also complicated, frustrating and incomprehensible for taxpayers. What's the result of a system that is unfair, inconsistent, outdated and impossible to understand? The result is thousands upon thousands of taxpayers who appeal their assessments every year. In every year since 1990, some 40% of the city of Toronto's assessment base has been under appeal. In fact, in 1993 and 1994 approximately 100,000 appeals were filed each year in Metro Toronto alone. Successful appeals cost Metro more than $100 million in each of those two years. With each new round of successful appeals, that figure mounts. Other taxpayers have to pick up those dollars in their property taxes.
For communities across Ontario, successful appeals are eroding the tax base they need to pay for local services. So communities have to push their tax rates up to make up the shortfall, resulting once again in more people paying more in taxes than they should.
When taxpayers launch appeals, they run straight into a complex, drawn-out and expensive process that can quite literally take years to come to a conclusion. Right now, according to the Assessment Review Board, there are some 344,000 property tax appeals pending in Ontario. Again I can give you some examples of how this plays out in some of the assessment regions across the province.
The city of Toronto, where my colleague Isabel Bassett's riding is located, has more than 64,000 property tax appeals currently in the system; Niagara region, where Mr Hudak's riding is located, has more than 26,000. Halton-Peel -- Mr Chudleigh's and Mr Spina's ridings are in this area of the province -- has 43,000 appeals outstanding; East York and Scarborough region, which includes ridings represented by Mr Phillips and Mr Brown, has some 30,000. North York, where Mr Kwinter's and Mr Cordiano's ridings are located, has 26,500 appeals working their way through the system; Etobicoke-York region, where Mr Ford's riding is located, has almost 27,000. Algoma, where Mr Martin's riding is located, has 737; Waterloo, where Mr Martiniuk and Mr Wettlaufer's ridings are located, has almost 10,000; Northumberland-Hastings-Prince Edward region, Mr Rollins's riding, has just under 6,000; while in the Kenora-Rainy River-Thunder Bay region, Mr Pouliot's riding, some 1,800 property owners have outstanding assessment appeals.
The unfairness and the unnecessary complexity in the present system don't stop with the individual homeowner or even the municipality. The local businesses that provide services and create jobs and prosperity in communities are struggling with an unfair system in much the same way.
Under the existing business occupancy tax, a parking lot is taxed at 25% of its assessed value, while a family-owned bakery next door is taxed at 60%; the tax base of the brewery down the same street is based on 75% of its assessed value; and the ad agency that creates the advertising, the posters and the flyers for all these businesses is taxed at 50%.
The impact of this is felt right across the community. What all this means for businesses is that the playing field is simply not level. If the playing field is not level, businesses can't compete efficiently and fairly with each other. Where businesses are less efficient they create fewer jobs, their services cost us more and communities across Ontario are not as prosperous as they could be and should be.
I think I've given you a fair sampling of what's wrong with the current situation, whom it's hurting and why it needs to change. Ontarians have been telling their governments for many decades now about problems in the system. We are listening and responding in Bill 106.
Now I'd like to move on to tell you about our plan, through Bill 106, to make the system better and about who will benefit from that change. The changes we're proposing through the Fair Municipal Finance Act will ensure that all property taxpayers are treated fairly and equitably. Families who have been paying more than their fair share of property tax will see their taxes go down because they won't have to pick up the tab for those who have been paying less than their share. Businesses that create jobs and prosperity in communities across Ontario will have a more level playing field, where they can compete, grow and do business.
Municipal governments will benefit from our plan to get rid of red tape and administrative duplication. They will have a new range of powers, choices and options to collect revenues from taxes in ways that fit best with their local priorities and best meet the service needs of their residents. They will be better able to plan how to serve their residents because they will have a more stable, predictable revenue base that is not being eroded by thousands upon thousands of tax appeals.
Taxpayers across the province will be able to understand how the assessment of their home or business relates to what it is currently worth. They will be able to understand how municipalities use that assessment to set taxes that pay for services. This in turn will make it easier for taxpayers to hold governments accountable for the way they spend taxpayers' dollars and for the services they deliver for those dollars.
We've looked at what's wrong with the present system and why it needs to be changed. We've also looked at who will benefit from our plan to make the system better. Now I'd like to move on to how we're going to put that plan into action.
Bill 106 is based on four key principles of fairness in property tax. These principles are:
Properties in a community that are assessed at the same value and are benefiting from the same services should pay the same taxes.
Property assessments are fair and consistent only if they are brought up to date and kept that way.
Property assessment and taxes should be open, transparent and understandable to everyone.
Taxpayers have the right to a fair, clear, straightforward and efficient process to appeal their taxes if they disagree with their assessment.
This is how Bill 106, the Fair Municipal Finance Act, will put these principles of fairness into action. We will create a system that is fair, clear, more consistent and more accountable. The proposed legislation will establish the Ontario fair assessment system, which will be based on current value; ensure regular updates of properties' assessed values; smooth the ups and downs in assessed values by the use of three-year rolling averages; make the property tax system fairer and easier for taxpayers to understand; give municipalities important new powers to address their revenue needs in ways that best fit local priorities; scrap the outdated business occupancy tax; create new low property tax rates for farmers and woodlot owners; exempt conservation lands from property tax; simplify the process for assessment appeals; and cut red tape and reduce administrative burden for municipalities.
The Ontario fair assessment system is the cornerstone of our plan to bring fairness to property taxes. First of all, OFAS will mean that every homeowner and every business property owner in every community across Ontario will pay taxes based on a simple, understandable policy: that two property owners who own similar property of the same value in the same community getting the same services will pay the same taxes. Their taxes will be fair, and taxpayers will be able to clearly understand how and why their taxes are fair. That's just common sense.
Secondly, OFAS will mean that the system will be fair and consistent throughout the entire province. Our plan is to put every one of Ontario's 3.8 million properties on the same valuation date: June 30, 1996. We're doing this not just to create a fair property tax system but to make certain that the system stays fair for every property taxpayer in the province.
We will create a system that is consistent across the province. Most important, we will ensure that all property assessments are fair and up to date and that they stay that way permanently. That's what the Fair Municipal Finance Act will do.
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To ensure property assessments are fair and accurate, assessors who are trained specifically for this job use some 30 different factors, ranging from information on recent sales in the neighbourhood to the number of rooms in your home.
The data that are collected on every property will be managed and analysed using computer models to produce an updated assessed value for every property. When we finish this process in December this year, every property in Ontario will have an assessed value that will be based on what it was actually worth on June 30, 1996.
Third, the Ontario fair assessment system will recognize the right of taxpayers to a clear and straightforward appeal process.
Earlier on I talked about some of the problems that have been created by the system that's presently available for property owners who disagree with their assessments.
Under the present system, decisions of the Assessment Review Board can be appealed to the Ontario Municipal Board. As I mentioned earlier, taxpayers who disagree with their assessments can find themselves tied up in red tape for literally years trying to reach a satisfactory resolution. Right now it can take as long as two years to schedule an appeal before the Ontario Municipal Board.
The Crombie panel found that this two-tier process was costly, difficult and time-consuming for taxpayers. We agree, and through Bill 106 we propose to simplify and streamline the process for taxpayers and eliminate costly waste and duplication, while protecting peoples' rights to appeal their taxes.
If you're a property owner or a tenant, you will be able to appeal your tax assessment more easily. Complaints can be resolved through a consultation process rather than through the formal, bureaucratic process of hearings.
Under the new process, if you are a property owner who disagrees with your assessment, your first step will be to discuss your concerns with your local assessor. If you can come to an agreement that resolves your concerns and the municipality agrees with your solution, there's no need for a formal hearing.
To allow more time for people to take advantage of this consultation process, we're extending the deadline for appeals. If you can't reach an agreement through the consultation process, the Assessment Review Board will hear your appeal and make a decision. The decision of this independent tribunal will be binding.
Under the new appeal system, taxpayers will still have all their current appeal rights and access to the courts that they currently have.
To sum up, the Ontario fair assessment system will mean that every property owner across Ontario can benefit from a fair, up-to-date, understandable and more open tax structure. In the same way, the plan we're proposing through Bill 106 will mean fairness for communities and businesses across the province.
Municipalities are in the best position to decide what is most fair to local ratepayers and what best fits with their priorities. Bill 106 offers municipal governments a choice in setting different tax rates for different classes of property.
Under the present system, municipalities only had two choices of tax rates. Many taxpayers argued that with the old system, taxes were not distributed fairly among property classes. We agree. With the introduction of variable tax rates, municipalities will have more choices and will be able to decide what tax rates to apply to each class.
Bill 106 proposes six standard property classes. These are residential; multiresidential; commercial; industrial; pipeline; and farmlands and managed forests.
Bill 106 also allows the provincial government to identify additional property classes. For example, we've determined that municipalities should be able to put new multiresidential properties in a separate property class if they wish to do so. This gives municipalities an option to encourage construction of new apartment buildings by taxing them at a lower rate.
Municipalities will have the power to reduce unfair differences in tax rates in a manageable way. But they won't be able to increase existing differentials in current tax burdens between property classes. In other words, municipalities can make the distribution of taxes fairer but they can't increase unfairness in tax distribution.
The Fair Municipal Finance Act also contains measures to allow local governments to bring in changes gradually, over time, in ways that are fair, compassionate and consistent with community priorities. What we are saying, by giving local governments the choice of how best to phase in change, is that we are confident that municipal representatives understand best the needs of their communities and their neighbourhoods.
These measures will give municipalities greater autonomy. Because municipalities will have more powers to decide how and when they will bring in changes, they will be more accountable to their local taxpayers. Because taxpayers will understand how municipalities calculate the taxes they pay, they will be in a better position to hold local governments accountable for how they spend taxpayers' dollars.
In order to protect seniors and people with disabilities, we're giving municipalities the ability to provide special protection from tax changes to low-income seniors and their spouses. Municipalities will also have the power to offer the same kind of protection to low-income people with disabilities and their spouses.
At present, the main way this kind of protection could be provided to seniors and disabled persons is through the complex and bureaucratic process of introducing a private member's bill in the Ontario Legislature. That process makes no sense and is too cumbersome and slow to respond to the needs of people and communities.
Under Bill 106, municipalities will be able to set bylaws to define low-income seniors and low-income disabled homeowners. Municipalities will be able to defer any tax increases that may result from reassessment until the properties belonging to these people are sold. Municipalities will also be able to set parameters, such as the rate of interest, for the deferral program.
Bill 106 will also offer municipalities choices in the way they help cushion the effect of tax changes on property owners. Municipalities will have up to eight years to phase in any tax changes that may result from the assessment update. That's more than double the period of time available today. While Bill 106 is all about making sure everyone pays their fair share of tax, this measure will make it easier for those who haven't been paying their full share to adjust to that change.
As well, this spring we plan to introduce legislation to enable municipalities to set lower tax rates on lower-valued commercial properties. Municipalities will be able to choose to tax properties, such as small retail stores and neighbourhood shopping districts, at a lower rate than office buildings and large commercial developments.
I noted earlier that it's harder for businesses to compete effectively when the playing field is not level. Outdated assessments mean an unlevel playing field. Under the new system, if you own a small business, you will no longer find yourself paying more in property tax than your competitor who has a similar property down the street. All small businesses in a municipality will pay the same taxes if their properties have the same value. Businesses will be able to compete on a more equal footing because we will reduce arbitrary tax distortions.
Eliminating these tax distortions would create a healthier tax environment for business. A healthier tax environment means that businesses can get on with the jobs they do best: creating employment in their local communities, providing services that people want to buy and contributing to growth and prosperity.
Annual assessment updates will help businesses plan with more certainty. This, coupled with the proposed reform of the provincial-local financial relationship, should increase business confidence.
I'd like everyone to take a good look at this photograph that's on the screen right now. This is downtown Toronto, on Yonge Street, at the turn of the century. It doesn't bear much resemblance to the heart of Toronto's financial district today, does it? But that's the time which the business occupancy tax was designed for. It's been on the books of the province, unchanged, since 1904, about the time this photograph was taken, and it hasn't changed very much since then. It's hardly surprising that businesses and municipalities across the province have complained that this is an antiquated and cumbersome tax.
To calculate the business occupancy tax, you must multiply the assessed value of the part of a property that is used by a business by a percentage rate specific to the type of business. It is impossible for taxpayers to understand and very expensive to administer. There is no justification for taxing different businesses at different rates.
The reality is that the business occupancy tax is unfair, outdated and discriminatory. Businesses and municipalities have long been asking for the elimination of this arbitrary and obsolete tax. The Who Does What panel recommended that we get rid of it; so did the Golden commission, the Fair Tax Commission and the Hopcroft report. We've heard these concerns and we've taken their advice.
With the Fair Municipal Finance Act, we will scrap the business occupancy tax. Businesses have responded positively to our intention to get rid of this tax. To quote the president of the Ottawa-Carleton Board of Trade: "It's one less tax for business, and that's great. Now the business community will invest what they save, and that's going to be good for the economy."
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Eliminating the business occupancy tax will also save money. It's costly for the province to calculate, it's costly for municipalities to send out tax bills and it's costly for municipalities to try to collect the revenue. Business occupancy tax is difficult to collect because, unlike property tax, it is a tax on the person owning the business, not the property.
At the end of 1995 there was about $200 million of business occupancy tax in arrears across the province. That again means the rest of us have to pick up the tab for that shortfall. Once again, that's unfair and it leads to many people paying more than their fair share of property tax.
Besides scrapping the business occupancy tax through Bill 106, we will give municipalities the tools to recover their share of business occupancy tax revenue, if and how they choose. They can continue to raise this revenue from business; they can raise some or all of the dollars from within the other classes of properties. It's their choice.
What else will property tax reform mean for businesses? Besides levelling the playing field and getting rid of tax distortions, Bill 106 also provides municipalities with powers to set tax rates to support the growth of businesses in their communities.
Variable tax rates will allow municipalities more opportunity to respond to unfair tax differentials. Historically, the only way municipalities could reduce the property tax burden on business relative to residential properties was to fully equalize taxes. This proved to be too big a step for many municipalities. The proposed new system will allow municipalities to make consistent improvements, in steps that are acceptable in their community. Smaller businesses, such as neighbourhood shopping districts and small retail stores, will also benefit from our plan to give municipalities the power to set lower tax rates on lower-valued commercial properties.
Finally, we are confident that by careful management of their new responsibilities, municipalities will be able to provide for a more supportive tax climate for all taxpayers, including community businesses. Indeed the new municipal powers allow municipalities to give any such tax reductions solely to business classes if that is the choice that best meets their local needs.
Bill 106 also brings a 75% reduction to the taxes paid by farmers and woodlot owners. Currently, farmers pay 100% of a property tax and have to apply annually to get a rebate for 75% of their property taxes. In other words, farmers' capital is being tied up unnecessarily because they are loaning this money, in effect, to the government, interest-free. Farmers have been asking governments for years to end this red tape and cash flow problem. We have listened to their concerns.
Bill 106 will get rid of the old farm tax rebate program and replace it with a legislated low tax rate for eligible farms, set at only 25% of the residential tax rate. Owners of woodlots will also be assigned to this new farm lands and managed forests property class. They will pay the same low rate of property tax as farmers.
Through the Fair Municipal Finance Act, we're also supporting and protecting critical natural heritage lands. Under the existing conservation land tax reduction program, owners of eligible conservation lands are eligible for a 100% tax rebate. The rebate is in place because, generally speaking, conservation lands are not revenue-producing and have restrictions on their use. Replacing this tax rebate program with a property tax exemption will cut red tape and reduce administrative costs while continuing to recognize, encourage and support the long-term stewardship of these natural heritage lands.
The government knows that viable and successful local airports are essential to economic development, jobs and investment in Ontario. That is why in Bill 106 we are maintaining the tax treatment of airports when they were federally owned and operated. Like all other provinces that have airport authorities, Ontario recognizes the economic benefits of airports to the Ontario economy and will provide tax support. The municipalities where these airports are located will continue to receive the same payments they would have received if the federal government continued to operate the airports.
In putting forward the Fair Municipal Finance Act, we're putting into action our plan to bring fairness to the property tax system across the province. We propose to begin implementing the Ontario fair assessment system in 1998. The updated system, when implemented, would base property values on what properties are currently worth. The reassessment that is already under way is not starting from scratch. Much of the province has relatively up-to-date data from which property values can be determined. Municipalities in 25 of the 39 regions and counties have recently been reassessed. About 47% of the province's 3.8 million properties are valued at their 1988 or 1992 value. We are on schedule to finalize assessment updates by the end of December.
I would also like to inform the committee at this time that in order to provide the public with as much information as possible about the proposed Ontario fair assessment system, this afternoon I'll be releasing drafting regulations for public comment and review. I have brought copies of the draft regulations with us, which I will give to the clerk of the committee to distribute.
Bill 106 is about fairness, consistency, openness and accountability. It is about fair taxes for families who have just bought new houses and are struggling to pay off a mortgage. Bill 106 will mean they aren't paying part of someone else's share in addition to their own. It's about fairness for seniors and people with disabilities who are worried about whether they can continue to pay their taxes on their homes. It's about fairness for farmers, renters, small business owners, the people who own conservation lands and everyone else who pays property taxes in Ontario. It is about making government more accountable to the people who foot the bills: the taxpayers in each community. It's about giving municipalities the autonomy they need and want so they can bring in these changes in ways that are best suited to their local priorities and needs.
All this, in turn, means Ontarians are getting good value for the taxes they pay, today and in the future. Bill 106 is about doing what's right for all Ontarians. It's time government took on this challenge. That's what our government is doing.
Once again I again thank you for inviting me here today. I look forward to hearing the advice of Ontarians at these public consultations as well as advice from the members of the committee. I might say, before I wrap up, we are certainly open to suggestions with respect to improvements of both the legislation and regulations, and I'd be interested to see what recommendations the committee brings forward.
The Chair: Thank you very much, Minister. Do you have time for a few questions?
Hon Mr Eves: Sure. I have to be in P and P at 2 o'clock, but we have a few minutes.
The Chair: We have five minutes for each caucus.
Mr Gerry Phillips (Scarborough-Agincourt): I have a paper here I wouldn't mind having handed out just because it's maybe easier to ask questions that way. I appreciate the minister being with us. His staff have been very helpful in briefings already and I'm sure will be.
I don't think there's any question that there is a need for reform of the property tax system. The challenge will be in the detail of this thing. As everybody says, it's in, "How well does this work?" as opposed to, "Should there be some changes made?" Frankly, it's so far a bit difficult for us, and I think over the course of the hearings we should get this fleshed out.
Just a couple of questions. The biggest change, or a big change, is on the business occupancy tax. I've been trying to work out some impacts of it because the only way I can really understand the bill is to say, "All right, what will it mean on properties?" I tried to take a look at a typical bank tower in Metro Toronto versus some kind of a bake shop or something like that. I talked to municipal officials, who have tended to say that their impression is that the revenue lost from the business occupancy tax will be recouped in all likelihood from the commercial and industrial sector, that few of them see putting it on to the residential property tax.
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If that is the case, as I understand it, a bank tower right now in Metro Toronto might be paying about $15 million a year in realty tax and another probably $10 million to $11 million in business occupancy tax. The business occupancy tax comes off. That revenue has to be recovered, but on the same basis from everyone. As I look at it, an organization like a bank tower would get a huge tax cut. According to the minister, the intent is that they're all taxed equally, but a smaller business would see a fairly substantial increase. As a matter of fact, the CFIB, Canadian Federation of Independent Business, raised that, as the minister will know.
This is an impact study done by myself of just a couple of properties, but it does show that those businesses that are paying the 75% business occupancy tax will see quite a substantial decrease, and those paying the 30% business occupancy tax quite a substantial increase. Is this consistent, Minister, with your own internal studies?
Hon Mr Eves: First of all, I'd say, Gerry, it will be for the local municipality to decide, once the BOT is eliminated, how they raise that revenue. You say you've talked to some municipal leaders who indicate that their choice will be to keep it inside that one commercial class. I would suggest to you that that won't necessarily be the case in every municipality in Ontario. Certainly in municipalities that value commercial enterprises, especially small commercial enterprises, as of some value to their community, I can't see responsible municipal representatives dumping that tax load on to smaller commercial properties.
We're also giving in this legislation, as you know, the ability for individual municipalities to charge a lower rate for smaller or less-valued commercial properties. I would be very surprised if a responsible municipal council or representatives or mayor did not respond to that opportunity that we are providing them in this legislation. So I don't think it is quite as simple as saying the bank tower -- and we all know how well banks are perceived perhaps across the average community in Ontario. I think it's somewhat sensationalistic to say that the bank tower's taxes will now be paid by your small local bakery because they'll both be taxed at 50%. First of all, that will be a decision for the municipality. If the municipality thinks that's fair, then I guess that's exactly what the municipality will do.
Also, municipalities today are losing millions of dollars. There's $200 million, as we alluded to in the introductory remarks, that is lost in the province of Ontario every year -- I would strongly suspect that the vast majority of it is right here in Metro Toronto -- because they can't collect business occupancy tax, because as you know, tenants and businesses, especially the ones that are tenants, tend to move around. They disappear and the municipality has no way of collecting the tax, so they're losing a quarter of a billion dollars a year now. They're also losing in Metro Toronto's case well in excess of $100 million a year, and they've consistently been doing that for the last several years, because of appeals.
Both of those things will be dramatically reduced once this system is up and running. We're talking of hundreds of millions of dollars a year here. We're talking probably in the neighbourhood of $200 million a year just in Metropolitan Toronto.
So I don't think it's quite as simple as to say that those that are now paying business occupancy tax at a high rate will now have theirs come down and small business will go up. I don't believe that responsible councils and representatives will do that to small business, and I think they will be receiving substantially more money than they are now because the system is a lot fairer and up to date.
Mr Phillips: Can you give us some impact studies that you've done? As far as I can determine, a bank tower will see these kinds of decreases, because if you take it from the 75% down to the average, it's 42%. I believe these are accurate, and they're almost the minimums. Can you give us a different set of figures that would suggest I'm not right here?
Hon Mr Eves: No, we haven't done any impact studies in this area, because as I just got through saying, it's up to the local municipality to decide how they're going to deal with this former business occupancy tax revenue. The ultimate impact study is of course going to be the reassessment of the province of Ontario, which process is well under way and will be completed by December of this year.
But in terms of shifting responsibility between different classes and determining whether or not they will avail themselves of the opportunity -- I'm speaking of the municipalities now -- of having a lower tax rate for smaller commercial or less-valued commercial properties, it's impossible to determine that until you know what the municipality decides to do.
Mr Gilles Pouliot (Lake Nipigon): Let me begin by sincerely apologizing for arriving late. We have a sort of extraordinary climate. We are a small group as members of the third party, and I was busy trying to learn the spelling of Filibuster Boulevard in the House. I also drew the wrong shift, Minister. But it's certainly a pleasure and thank you for --
Hon Mr Eves: Mr Pouliot, may I say at the outset that I have been in your place with a small caucus, and I understand.
Mr Pouliot: That's right, but you were busier with lakes and rivers for a shorter period of time. Thank you for your attendance, and members of your staff, and of course my colleagues at the committee.
When we look at the transition, at your proposal and at the example that Mr Phillips put forward of the so much maligned banks, but I must admit that they are not the hardest target, the bank tower in downtown Toronto will benefit by virtue of the elimination of what everyone agrees is not the best way to perceive money, that of the business tax. If you work at the bake shop, you get hit fairly big time already, but you'll have to carry more of the burden.
I've been following your career very closely for the past 12 years, Mr Deputy Premier and Treasurer, and if I was to guess -- this is not like buying Bre-X; this is a lot easier here -- will Ernie Eves end up in a bank tower when he finishes politics or at a bake shop, I'm putting my money on the bank tower, and I want to wish you well.
Hon Mr Eves: I have colleagues who may disagree there.
Mr Pouliot: Winners and losers. You have the industrial and large assessment getting a break. The jury will be out for some time as to whether it creates jobs or how much of it filters to the street. In lieu of that, the people who are the job creators, which is the commercial value, will inevitably have to shoulder more of the tax burden.
Your Premier has indicated that municipalities across the province should be able to deliver a 10% decrease at the residential level by the year 2000. Therefore, in your rush to download and to web and mesh the mechanism, the regulation that goes with it, you have decreed to reassess every property in the province of Ontario. The cumulative effect of the policies that you are enunciating, that you're putting through, makes it very, very difficult for municipalities to put yet more on the plate, more to assimilate, more to digest, and yet you conclude your statement by the repetitive lament or plea on the back of others. It's always easier for the municipality to deliver in accordance with your guideline as long as you don't have to do it yourself. You philosophize well, you're well-intended, but you forget to trust the mail system with the cheque or you send fewer dollars and you wish them well.
I welcome the redefined methodology. Time moved on and we didn't. It's not the best way. Even the Fair Tax Commission acquiesced to that. But in lieu of that, you readily admit that the bank tower, the people who can best defend themselves, will be able to run away faster than ever before. It will jeopardize the middle class further. You will see a further erosion at the residential and commercial level; make no mistake about it. In the case of the city of Toronto, you will put the city of Toronto, over a short period of time, under a state of siege, because what you're proposing via the reassessment and the business tax does not stand alone.
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I would like you to tell us, since this is not revenue-neutral, this is not a fair exchange -- no government in the western world would risk politically what you are risking if it were just a change, because you are not that well-intended. Charity begins at home. Why do you do it? You have a $5.4-billion responsibility with your third and fourth instalment when your 30% tax cut is delivered, and you have $11 billion to reconcile over a period of one term of office, four to five years, assuming.
So I find that the downloading has taken on extraordinary proportions, that deliberately and systematically, because of your policies, you have hurt those who can least defend themselves. You've simply passed the buck.
Mr Phillips: There was a question there somewhere.
Hon Mr Eves: Was there a question there?
Mr Phillips: "Yes or no?"
Hon Mr Eves: Thank you, Gerry.
I think it was an eloquent statement that the honourable member delivered, but the reason why we're doing this, quite frankly, is to restore some element of fairness in the property tax system in the province of Ontario. I don't think anybody could look at those varying differentials on the map of Ontario and concur that some people should be paying on 1940 values and others should be paying on 1992 values. That's just totally unfair, totally inequitable and 50 years out of date in some cases. Some people are paying far more than their share and some people, quite frankly, haven't been paying their share for some decades upon decades of time.
I don't think, as I explained to Mr Phillips in my response to him, that it's as simple as to say that the small bakery example that you both chose is a fair one, because I firmly believe that responsible elected municipal people such as the mayor of Toronto and others will avail to small commercial properties a different and lower tax rate. I'd be very, very surprised if those people who champion the underdog every day in the media are not going to avail themselves of the opportunity that we are going to provide to them through Bill 106.
You talk about what other jurisdiction in the world would think about doing this. Well, in British Columbia, the party in power there -- you have some knowledge of their political background -- has an actual value system that quite frankly, in my opinion, will not be quite as good as the one we're introducing because they do not have a three-year rolling average to account for fluctuation in property values year over year. But their system has worked quite well.
All you have to do is compare the appeal rate in their system and the success of the appeal rate in their system to the appeal rates and successes of appeals in our system to readily see that in Metro Toronto you have 40% of the properties under appeal every year and Metro Toronto losing in excess of $100 million in revenue every year through property assessment losses alone, and in B.C. that number is less than 2%. Why is it less than 2%? Because everybody is treated fairly and equitably on the same basis. If you have a property that was sold for the same amount in the same community on the same street, they're all evaluated at the same time and they pay exactly the same tax. That reduces dramatically the likelihood of successful appeals in the system, and once this system is up and running, it will become far more fair and equitable for everybody.
Will there be adjustments? Absolutely there will be adjustments, and we've tried to accommodate for those as best we can in Bill 106 by phasing in over eight years, by giving municipalities the ability to seek additional classes if they so choose from the provincial government. We're expanding a number of classes as it is; that's at six. But we do not have a closed mind with respect to municipalities coming forward and making additional requests, and we do not have a closed mind that this is the only system, the only exact way that this fairer system will work.
You talk about $11 billion, the reason for some of the steps the government has taken. Obviously we came to the conclusion shortly after the election in June 1995 that we could not continue on the same road that the province was going down. That year, as you know, we faced an in-year deficit of $11.2 billion. Are some of these decisions easy? No, they're absolutely not. Are they difficult? Absolutely. Are some of them going to adversely affect individual Ontarians? Yes, they are. Do I like that? No, I don't. But the reality is that there won't be a future for anybody in the province if some of those things aren't dealt with. I understand that there may be different political philosophies as to how you deal with those problems, and I understand that yours would not be the same as mine. However, I can assure you that this government is doing what it thinks is most appropriate to improve the situation.
Ms Isabel Bassett (St Andrew-St Patrick): Minister, I was going to ask you about the Ontario fair assessment system, how it would make things fairer, but since you've answered Mr Pouliot, I'll move on to a letter that's been reported where Toronto Mayor Barbara Hall claims that the city of Toronto will lose money over the next two years because she claims that Bill 106 will shift the financial burden of tax losses caused by successful property tax appeals on to municipalities. I wonder if this is true and if you could elaborate on it.
Hon Mr Eves: I not only received the mayor's letter but I also of course read the appropriate articles that appeared in various media with respect to this.
Our viewpoint is that the city of Toronto's interpretation of Bill 106 is not correct, that section 421 of the Municipal Act of Ontario will permit a municipality to recover taxes that the municipality refunds to the owner of the land due to loss of an appeal from the school board or the upper-tier municipality. Section 80 does not prevent municipalities from recovering tax losses arising from successful property assessment appeals.
If they would like some further clarification or strengthening of that interpretation that the ministry has with respect to those sections, we'd be more than prepared to look at that.
Mr Joseph Spina (Brampton North): Minister, thank you for the presentation.
One of our government's goals, as you know, is to create an environment in this province for small business, and as the PA responsible for that, elements of this bill are of particular interest to me.
I disagree with Mr Phillips's comparison, because obviously he's comparing apples and oranges, but I'd like a little more information on the flexibility and the guidelines that we are putting into this bill that will allow the municipalities to give smaller businesses a fairer shake as a result of the removal of the BOT, I guess the changes in some of the categories in commercial assessment, and we all know that there are a whole lot of other factors that really influence the actual assessment of each individual property.
Hon Mr Eves: First of all, as I tried to explain both in my opening remarks and in responding to Mr Phillips, municipalities will now have six different property classes to choose from. We're not rushing in to create more property classes, but we've certainly not precluded the possibility of somebody making a good case to create additional property classes.
But more basic than that, we also are going to give them for the first time the opportunity to have two different rates of taxation for smaller or more modestly valued commercial properties. I would be very surprised if most municipalities do not avail themselves of that opportunity, because I think everybody understands that small business is what drives the economy and the engine of Ontario's economy. So I fully expect that most municipalities will avail themselves of that opportunity, and that will have a very beneficial effect on the small business community.
It depends what municipality you're in, of course, what proportion or ratio you have of property taxpayers vis-à-vis commercial or industrial taxpayers, but suffice it to say that in some municipalities they may decide to forgo a portion of what is now business occupancy tax revenue. Some of them are losing tremendous amounts of money as it is now because they find business occupancy tax very difficult to collect. They have some huge administrative problems with respect to business occupancy tax. I think this will be a much fairer system at the end of the day.
Commercial and industrial ranges and parameters: We have not totally decided on those ranges yet but we are receiving advice on that. We are going to be setting up a commercial and industrial panel to advise us on those types of things in the very near future.
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I think at the end of the day the question that you still have to come back to is: Is our current system fair or not? I think the answer to that is a resounding no. As I said, governments of all three political stripes -- one that I was a part of for a period of time, the Bill Davis government; the David Peterson government; the Bob Rae government -- all three of those governments struggled with this issue. All three of them moved to address the issue and at the end of the day, quite frankly, all three of them backed off at the 11th hour because of political opposition.
It is the fair, equitable and right thing to do. Are there going to be some individual problems that arise as a result of it? Absolutely. But at the end of the day, everybody in Ontario will know that they are all being treated the same, they're all being treated in a much more fair and equitable manner than they are today.
The Chair: Thank you very much, Mr Minister. We appreciate your time before the committee.
As we move to the ministry staff for an hour-and-a-half presentation and questions, the clerk has distributed to you the subcommittee minutes of our last subcommittee meeting, held April 2. If there are no problems with those minutes, could we pass those minutes at this time? Would you so move, Mr Spina? Mr Pouliot.
Mr Pouliot: With respect, Mr Chair, I'm quoting, "That the deadline for oral presentations for Thunder Bay, Ottawa, Chatham, be extended to 4:00 pm," and I match with what Mr Carrozza, our clerk, has mentioned in terms of how we get from one place to the next next week. The last hour when a flight can depart on our original proposal was at 4:30 pm. You're extending the oral presentation to 4. Your time to get to the airport is --
The Chair: I think we're all right. Our last presentation will at finish 3 and I think an hour and a half to get from the hotel to the airport, which is in the same vicinity, is a reasonable time frame. I will endeavour to ensure that we do catch that flight.
Mr Hudak has moved. Are all in favour? The subcommittee's report is approved.
MINISTRY BRIEFING
The Chair: I would now like to introduce the staff for the Ministry of Finance: Marion Crane, director of tax design and legislation. Marion, welcome to the committee. I will leave it to you to introduce any other staff members that you have brought along. If you would do so before they start to speak so that Hansard will record their names properly, I'd appreciate that. You have a presentation first and then we'll take questions.
Ms Marion Crane: Yes. I'd like to introduce Tom Sweeting, who is the director of the taxation policy branch. He will begin the presentation today. Elizabeth Patterson, the assistant deputy minister of the property assessment division, will be joining us shortly. Tom will start and Elizabeth will carry on from Tom.
Mr Tom Sweeting: We just have a technical glitch here. I'll continue without the benefit of slides, if that's what the Chair wishes, or we can wait.
The Chair: That would be fine, please.
Mr Sweeting: Essentially, the minister has indicated to the committee the rationale and the reason for the changes that are proposed to the Assessment Act and the Municipal Act through Bill 106. What we're looking at is a series of changes that will provide for a new assessment system for the province, an updated assessment system, as well as provide new tax policy options for municipalities. Bill 106 is a first step in the legislative process and will be followed by further legislation. Generally speaking, the provisions of Bill 106 will be effective for the 1998 taxation year.
Ontario's property tax system is, as the minister said, unfair, out of date and complex. Why is it that way? The main reason it is that way is because the assessments in the province are out of date. Many municipalities have assessments that have not been updated for a number of years; many have not been assessed at all since the province has taken it over. We have many different base years, all of which contribute to a different value on properties.
About two thirds of the municipalities have relatively up-to-date assessments. In fact, 722 of the 775, or 93% of municipalities, have been reassessed since 1970. Some 402 of those municipalities have been updated in 1988 or 1992 and they are updated regularly. Another 119 of those municipalities were updated in 1988 or 1992, one-time, and 201 of the municipalities are 1984 or older and they're one-time reassessment. In addition, 53 municipalities haven't been updated at all since 1970.
Another way of looking at the state of the assessment system is in terms of the property values and numbers of properties: 53% of the properties in the province, two million properties, have assessments that are out of date, they're more than 10 years old, and more than a quarter of these properties are in Metropolitan Toronto. In terms of assessment base, 64% of the assessment base in Ontario is out of date, almost half of which is located in Metropolitan Toronto.
When assessments no longer reflect current values, then what you will end up with is a system, as the minister said, where similar properties can have different assessed values, which creates an unequal and unfair distribution of taxes. If you look at a couple of examples here, and these are hypothetical examples but they are known to occur with regularity in certain places, if you had two properties in the same neighbourhood that were worth $295,000, two houses, it's quite possible that the owner of house A would see an assessment something like $8,000 on his or her property, would then pay a residential mill rate assumed to be 460 mills here and pay $3,600 in taxes. The owner of house B, a $295,000 property in the same neighbourhood, may have an assessment of $6,000 on that property. Same residential mill rate, different tax: $2,700.
Inequities like this become embedded in the system when the values of assessments are not updated, because property values change over time in relation to one another. The two properties in question here today have the same value. At some time in the past, they didn't. What a failure to update fails to recognize is that as preferences change, as what people are willing to pay for properties change, the values of the properties change and the tax system should be keeping up to date with that.
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Similar inequities exist for business properties. Again, we take a $295,000 property. This time it's a business property, assuming in one case that it's a dentist's office, in another case it's a clothing boutique. This time in calculating the taxes there's yet a different assessed value for business A than was the case for either of the residential properties we looked at on the previous slide. There's also an additional business assessment through the business occupancy tax, giving rise yet again to another substantially different amount of tax. Business B again has a different assessed value. Because of the way assessment values have grown, it does not have the same value as the previous property, even though it is worth the same amount of money in today's terms. The business assessment is different because in this case we're talking about a clothing boutique, as opposed to the earlier version. They pay a lower amount of business assessment, they pay a lower amount of business tax and in total they pay a different amount of property tax than the business across the street that's a dentist's office.
When assessments no longer reflect current values, you also are going to find business competition problems. Very similar businesses can find themselves paying different amounts of tax, even though they're located in essentially the same neighbourhood and competing with one another. As well, as was indicated previously, lots of appeals get filed and the stability of the local tax bases is jeopardized by a high number of appeals.
The other main way that the current system is out of date and unfair is the way it treats municipalities. The present system limits municipal choice. Currently, properties are taxed at only two rates. Municipalities essentially have the choice of setting a tax rate for the amount of money they need to raise, and the tax rates are legislatively required: one rate for residential, one rate for commercial, and they are 85% to 100% in the relationship. So there's very little opportunity for municipalities to adjust tax burdens or tailor tax burdens to their local needs.
They do have the ability to affect tax burdens by choosing to have a reassessment. They have the opportunity to have a reassessment by property class under the current system, whereby they would maintain historical relationships. They would equate the values of properties within a class, but they would pay the same amount of tax as a class before reform as after. Or they could have a full market value reform, in which case all properties go to the same base and all properties pay the same relative amount of tax, other than the 15% differential.
These are two options that are available, but they're somewhat restricted options available to the municipality. So there's not a lot of opportunity for a municipality to respond to the circumstances that we've been pointing out that can arise when assessments are out of date.
That's the reason why the old system is being replaced. I think I'll turn it back over to Marion to continue.
Ms Crane: Elizabeth Patterson, the assistant deputy minister of the property assessment division, is going to give us an overview of what's involved in the property-wide reassessment that's going on right now and some of the steps involved in that.
Ms Elizabeth Patterson: As Marion has indicated to you, I'm not a person who deals with taxation policy or assessment policy; I'm a person who deals with administering assessment. The task that we have been handed, that is, the revaluation of 3.8 million properties that must be assessed at their current value for taxation in 1998, is a large one. The ministry thought it might be useful to know how we're proposing to do that.
Of those 3.8 million properties, about 3.3 million are residential properties -- they're probably the easiest properties to value -- there are about 43,000 multi-residential properties, basically apartment buildings, and 200,000 commercial and industrial properties. There are also, for example, other properties that don't fall into those classes, like churches and hospitals and some other categories of property.
Bill 106 requires that all property be assessed at its current value. I guess for the benefit of the lawyers in the room, that's defined as, "The amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer." For those of you who aren't lawyers, "fee simple" means all the ownership rights there are in a piece of property, and the phrase "if unencumbered" is designed to exclude from the calculation circumstances like rental or mortgage encumbrances. We're looking at the value of the whole property if the property were sold at arm's length, that is, not between family members or a company and one of its shareholders but between two parties who aren't acquainted with each other, where both are willing. For example, someone who has just accepted a job in another province and has to sell his house on a very quick basis or who is just about to see a mortgage foreclosure occur on his property may be operating under slightly different circumstances in negotiating a sale than he otherwise would.
For all jurisdictions that choose value-based assessment, there are three standard approaches that are used both by assessment professionals and by private fee appraisers. The one that applies to most of the properties, particularly those 3.3 million residential properties, is comparative sales. It is the most direct method of establishing value. What it basically does is look to the circumstances of properties that have sold and establish the values of properties that haven't sold by comparison. Adjustments have to be made for differences between the property being valued and the sold property. Traditionally that's been done by removing the cost of certain amenities that aren't present in the property being valued. There are new methods, however, of doing this and I'll be speaking to those in just a minute. As I said, residential properties are usually valued in this way.
There are some properties -- think about shopping malls and large office buildings -- that aren't particularly adaptable to being valued in this way. In those circumstances we're attempting to determine what a potential investor would pay for the income that is generated by those income-producing properties. We will analyse the potential income and the operating costs and then use what's called a capitalization rate, a multiplier which is determined in the market. If the market is prepared to pay 10 times annual rent to acquire a building, then 10 times would be the capitalization methodology. That's basically the way in which those malls and office towers are valued.
Some properties that are owner-occupied are somewhat unusual. Think about the local GM plant, large industrial properties. Those are based on cost, and that is actual construction cost, we gather information on that, and there is a provision for depreciation for adjustment for the age of the property.
I spoke to you about another method of sales comparison. The assessment industry, like every other industry in Ontario, has been affected by the use of new technologies. The new technology in the assessment business is called multiple regression analysis. That's basically the use of a computerized statistics-based program to establish the value of properties based on sales information. What it permits us to do is to isolate various elements of the value of a property that's sold, whether it's a location, being located in a good neighbourhood, whether it's amenities like being close to a shopping mall or being on a cul-de-sac street or on a ravine, whether it's structural elements, the sort of archetypal marble bathroom with solid-gold faucets. It lets us determine which of those elements are relevant to value and to quantify the impact. We can then build models, formulas that can be applied to unsold properties.
What are we engaged in now in your constituencies across Ontario? Before you can establish value, you must gather information. We're gathering information through on-site property inspection, through sending written requests for information or to confirm existing information; we're investigating sales; we're building manuals of construction costs; and we're looking at local modifiers, which says that if you're in a northern community there may be structural requirements like insulation that are greater in norther communities than they might be in the south. There also may be additional costs associated with transporting construction materials to northern communities, so the local modifiers might be higher there. We're looking at land values based on sales of vacant land, we're collecting and analysing rent data for income-producing property and developing the capitalization rates I spoke to you about. We have quality control measures and fine-tuning measures in place.
At the moment we have about 71% of the sales investigation complete. That's the information we gather first in order to construct our models. We have about 37% of the on-site inspections complete and will expect to pick up more of those over the summer, as we employ summer students and as properties are easier to get to and as we use some private sector contractors we've recently retained to do some sales investigations on our behalf. We're also mailing out and seeing returned about 57% of the income and expense questionnaires upon which capitalized income values will be based.
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It's important to remember that where there have been attempts at reassessment in the past that have failed, like in Metro Toronto and in Brampton, for example, while there's not been an improvement in equity or fairness -- and Tom has listed those as not contributing to a better system in Ontario -- they do provide us with information. In Metro Toronto, as a result of appeals, as a result of failed attempts at reassessment, we know a good deal about the properties and it may not be necessary for us to gather data.
We have about 1,600 full-time staff in assessment and we have about 472 contract employees who are working with us, as the minister said, to produce values for all these properties by December this year. Following that, assessment notices will be issued to every property owner in Ontario so that they can determine the new value that's been placed on their property. We will be holding open house sessions in every community where a taxpayer can sit down with an assessor and determine how their assessment was valued, and ultimately we'll be returning the assessment rolls to municipalities by April 30, 1998.
I guess there's one more date that's important. As you know, through the extension of the appeal period from the date they receive their assessment notices in February and March till 60 days after April 30, 1998, taxpayers will have an opportunity to resolve any concerns they have about their property assessment without having to resort to a tribunal process in order to get the issue resolved. Thank you.
Ms Crane: Now I'm going to continue with an overview of the provisions of the bill that the minister spoke about. I'm going to give a little more detail on what's contained in Bill 106 and the main principles of the bill.
The main features of the new property assessment system and tax system are regular or annual assessment updates using current value, property classes for all properties, the replacement of the tax rebate programs with lower tax rates, the elimination of the business occupancy tax, municipal power in setting tax policy, phase-in provisions, property tax deferrals and a streamlined property assessment appeals system. I'll deal with each one of these in turn.
Assessment updates using current value: The proposed assessment system is referred to as the Ontario fair assessment, OFAS. Under OFAS, current value assessments would be used to value properties in Ontario, and in 1998 assessment would be based on 1996 values. Elizabeth has explained how current value is defined and what it means: basically the amount of money the property would realize if sold at arm's length by a willing seller to a willing buyer.
Eligible farm lands and managed forests and conservation lands would be assessed on current value reflecting their current use, which may be less than the amount of money the property would realize if sold for non-farm use at arm's length. In exceptional circumstances, a municipality can request that the Minister of Finance assess certain groups of property in their current use only and not their current value.
The system would be completely updated with a new set of values that treats properties across the province in a fair and consistent way. The updating of assessments would put every property in Ontario on the same valuation date: June 30, 1996. This new property assessment and tax system would be effective January 1, 1998.
These updated assessments would create a more understandable property tax system; that is, you're going to be able to see the assessed value of your property in a reflection of something that is in a form understandable to you. This assessed value times the tax rate will give you the new property tax. For example, a residential property valued at $100,000 would have an assessed value of $100,000, and a commercial property valued at $100,000 would have an assessed value of $100,000.
The new system provides for regular updates. This chart shows how often the updates will take place. For the taxation years 1998, 1999 and 2000 the valuation date will be June 30, 1996. For 2001 and 2002 the valuation date will be June 30, 1999. For 2003 the valuation date is June 30, 2001. For 2004 and subsequent years the valuation date will be June 30 of the prior year, with annual updates continuing every year.
As well, the proposed legislation provides for rolling averages. Because the new system is value-based, it will reflect the ups and downs of the marketplace, but the three-year rolling averages will serve to moderate to a significant extent the changes that will take place in any one year.
The rolling averages begin to be implemented in the year 2005, with values from 2005 and 2004 being averaged for the year 2005; and for 2006 and subsequent years the assessment is the average of the current values from the taxation year and the previous two years.
As well, Bill 106 provides for six standard property tax classes and every property will be assigned to a property class. The standard six property classes are residential/farm, multiresidential, commercial, industrial, pipeline, farm lands and managed forests.
All property classes are to be prescribed by the Minister of Finance. In the draft regulations which you received a copy of today some of these property classes are defined, and there will be further ones defined as well.
The Minister of Finance has the authority to add additional classes and to define what is included in property class. For example, the new multiresidential class will be another class which will be defined by the Minister of Finance.
Some of the properties that will be included in each of these classes are as follows: The residential/farm property class would include such properties as single-family residence, residential condominium unit, farm residence, and land owned and occupied by a religious organization. The multiresidential property class would include land used for residential purposes consisting of seven or more self-contained units.
The industrial class would include land used for or in connection with manufacturing, producing or processing anything; generation, production or transformation of electricity; mining, quarrying, producing oil or gas or extracting anything from the earth.
The pipeline class would include pipelines for the transportation, transmission or distribution of gas or liquid hydrocarbon or any product or byproduct.
The farm lands and managed forests class are not in the draft regulation that you received today, but we will be issuing draft regulations defining these classes within the next month. Basically in these classes will be the properties that were eligible for the farm tax rebate and the managed forest rebate that is in existence right now and that would be replaced by Bill 106.
Eligible farm lands would include such things as farm lands and outbuildings used in a farming business providing a gross income of at least $7,000 in a normal production year.
Eligible managed forest would include a forest that is owned by a resident who has applied to have the woodlot designated as a managed forest, and it would be four hectares, or 10 acres, or more in size.
The commercial class would include land not included in any other class.
Of the special applications that I mentioned, one of them is the new multiresidential property class. Municipalities could opt, by bylaw, to use the new multiresidential property class for newly constructed rental apartment buildings with seven or more units. Municipalities could set a tax rate for new buildings constructed after December 31, 1997, within the provincial range of fairness for new multiresidential property. A property included in this property class would remain in the class for eight years, after which it would be moved to the multiresidential property class.
For mixed-use properties, the current value of mixed-use properties would be divided among the different uses, and the appropriate tax rate would apply to each portion based on the property class to which it is assigned. For example, if there's an industrial mall occupied by light industrial businesses and commercial tenants, right now there is one taxation rate, the commercial-industrial tax rate. Under Bill 106 there would be two tax rates. It would be 70% in the industrial tax rate and 30% in the commercial tax rate.
Railways and utility rights of way: The existing practice is to value rights of way on the basis of abutting land values. Changes made by the bill provide for the method of assessing railway and power utility rights of way to be prescribed in regulation.
Another thing that Bill 106 does is eliminate the rebate programs which I've mentioned previously: the farm lands, managed forests and conservation lands rebate programs.
The current practice is that participants pay their property tax and then apply for a rebate. The rebate amount is 75% of the total property tax for farm lands and managed forests and 100% of the total property tax for eligible conservation lands.
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Farm lands and managed forests properties: There will be a new property class which I mentioned for properties now receiving the farm tax rebate and the managed forest tax rebate, and the tax rate for these classes will be 25% of the residential rate. The eligibility for land to be determined in these classes will be determined by the Ministry of Agriculture, Food and Rural Affairs and the Ministry of Natural Resources. The current value assessment of farm lands and managed forests would reflect their current use.
Eligible conservation lands would be exempt from property tax. These lands are identified by the Ministry of Natural Resources and would include land now eligible for the conservation land tax reduction program, such as provincially significant wetlands and areas of natural and scientific interest, areas designated as escarpment natural area in the Niagara Escarpment plan and other conservation lands owned by charitable and conservation organizations which contribute to provincial objectives.
Eliminating these rebate programs and reducing property tax would save $165 million in costs, reduce red tape for participants, and it doesn't tie up the owners' capital unnecessarily. Instead of paying their tax and waiting for a rebate, the tax reduction comes up front.
The minister also mentioned the business occupancy tax. The business occupancy tax is paid by the business occupant, not the owner of the property, and it's separate from the realty tax. As the minister mentioned, it was established in 1904 and based on a rate structure that no longer makes sense. In 1995, the business occupancy tax raised $1.6 billion. On average, the business occupancy tax accounts for 28% of the total property tax paid by business.
The way that the business occupancy tax is calculated is by taking the assessed value of the premise occupied by a business and multiplying it by a percentage rate applicable to the business. The percentages applied to various businesses for the business occupancy tax range from 25%, which is the rate for parking lots, to 75% for distillers. If you look at the chart that shows the ranges from 25%, 30%, 50%, 60%, 75%, it's rather difficult in today's times to look at these rates and say that they make any sense.
The problem with business occupancy tax is that it's not fair. There's no rationale for why one rate is applied to one business and a different rate to another business. It's difficult for taxpayers to understand, it's relatively expensive to administer -- the costs are about $5 million -- and it's difficult for municipalities to collect because some businesses move or go bankrupt. At the end of 1995, about $200 million in business occupancy tax was in arrears. It's being eliminated because businesses and municipalities have long been asking for the elimination of this arbitrary and outdated tax. Eliminating this tax is one more way to ensure less costly government.
How will the business occupancy tax be recovered? The business occupancy tax is a significant source of revenue for municipalities; $700 million in 1995 and 11% of total property taxes for municipal purposes. Municipalities, as the minister mentioned, would decide whether or not to recover equivalent revenues through property tax from any or all property classes. They could recover less revenue or the same revenue. They could recover the same revenue from just the commercial and industrial property classes or they could recover the revenue proportionately from all property classes. The municipalities will have the ability to decide how they're going to recover it.
A number of important provisions in Bill 106 deal with the power of the municipalities in setting tax policy. The new current value system requires municipalities to set a tax rate for every class of property. Municipalities can choose different or variable tax rates for different property classes. As Tom mentioned, under the present system there are only two tax rates, residential and commercial, and residential must be 85% of the commercial rate, so there's very limited flexibility right now.
The tax rate is a percentage of the assessed value of a property used to calculate property tax. Under the new system the municipalities would continue to establish their financial requirements to provide services for their citizens and the tax rates would be set to raise the required revenue.
In setting tax rates, municipalities will be required to follow provincially set tax ratio ranges. Now tax ratios are the relationship between the tax rate on one class of property and the tax rate on the residential farm property class, which is the benchmark. The tax ratio for the residential/farm class is 1.0. So if we look at an example where a $200,000 residence pays $2,000 in property tax, a $200,000 commercial property pays $6,000 in property taxes, the ratio for the commercial property class will be 3 to 1.
The table on the following page gives an example of how tax rates and ratios would work. If we assume that the residential\farm tax rate is 1.5% and the benchmark for the residential farm class is 1, this table shows the tax ratios of the different classes and the tax rates that would be equivalent.
For 1998 the Ministry of Finance would determine these transition or starting ratios, and these will be set out in regulation. The transition ratios are the actual tax ratios that exist as of January 1, 1998, and are based on the effective tax rate of each property class. The way they are determined is by taking the total 1997 taxes paid for the property class and dividing it by the sum of the new current value assessments for that property class. The transition ratios would reflect the status quo of the new property classes and would be in place until a municipality passes a bylaw to set out new tax ratios.
As I mentioned previously, the province will define a tax ratio range for each class of property. These parameters are set by the province to represent the fair degree of tax variation between a class of property and the residential class. Transition ratios that are outside the ranges could be retained, but any further changes in the ratios must move closer towards the ranges.
There's an example here. If the provincial range for a class was from 2 to 3, if the transition ratio was 2.5, a municipality could keep the ratio the same or move the ratio up or down within the range because that municipality is already within the range. If another municipality had a transition ratio of 3.5, they could leave their ratio at 3.5. If they wanted to move it, they'd have to move it closer to the provincial range, which would mean that they could move it, for example, to 3.3, closer to the range, but they couldn't move it any farther away. If a municipality had a range that was lower than the provincial range, you could keep the ratio the same or move the ratio closer to the provincial range. If they decide to move it, it has to be moved up in this case.
Where there is an upper-tier municipality ie, a county, a region or a district municipality, the tax ratios are established by the upper-tier municipality. An upper-tier municipality may delegate the authority to establish the tax ratios to its lower-tier municipalities. But all of the councils of the lower-tier municipalities must consent to the delegation before it is effective.
If the upper-tier municipality sets the tax ratios, then similar properties with similar values would pay the same tax for upper-tier purposes in all municipalities within the upper tier and the same tax for lower-tier purposes within the lower-tier municipality.
If the lower tier sets the tax ratios, then similar properties with similar values could pay different upper-tier costs than properties in another lower-tier municipality within the same region or county. In this case, where the lower-tier municipality sets the tax ratios, an apportionment formula would have to be agreed upon by the lower-tier municipalities and the upper-tier government to distribute upper-tier costs.
Municipalities not in a tiered structure, ie, a separated municipality such as the city of Windsor, will establish their own tax rates.
Now there are some exceptions to these tax ratio range limitations. The Minister of Finance could pass a regulation allowing a group of municipalities with a tax ratio-setting power to establish a certain tax ratio for each class of property. For example, municipalities may decide they wish to move to the same or a common ratio to improve tax equity, reduce tax competition and decrease barriers to further amalgamation within a certain geographic area.
If we look at an example of a certain property class where the provincially mandated range is 2.0 to 2.75 and you have three municipalities, A, B and C, with transition ratios of 2.5, 3.0 and 3.5 respectively, under the normal provisions of the legislation, if they all wanted to move to the transition rate of 3.0, that wouldn't be possible. This section and the regulation passed under the section would allow the municipalities to move to this common ratio of 3.0 if those chose to do so.
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For the purposes of this section, a group may consist of several upper-tier municipalities; several upper-tier municipalities and a single-tier municipality; or several single-tier municipalities. As I mentioned, these are exceptions to the rule for the normal way the tax ratio works. In order for this exception to the normal rule to occur, again council of each municipality within the designated group must request such a regulation through a bylaw specifying the property class and the applicable tax ratio.
Another important part of the Ontario fair assessment system is the phase-in provisions. Municipalities could pass bylaws to phase in tax increases and/or decreases arising from the reassessment. The maximum phase-in period is eight years. The phase-in program would be determined by the upper tier where there is a two-tier structure, or the councils of each local municipality where there is not a two-tier structure.
There are a number of options that will be available to municipalities with regard to the phase-ins. They could have phase-ins for all or some classes, different phase-ins for different classes. Tax increases could be phased in at different rates than tax decreases. There could be an even distribution of phase-ins or they could be accelerated at the front end.
In addition, there are provisions for property tax deferrals. Municipalities could defer assessment-related tax increases on residential properties. Municipalities would be allowed to give tax deferrals to owners, or their spouses, who are low-income seniors or low-income persons with disabilities, and "low-income senior" and "low-income person with a disability" would be as defined by municipal bylaw.
Municipal bylaws, in addition, could set a rate of interest for deferral up to market rate and they could also stipulate the conditions for repayment of the deferral.
One of the other provisions of Bill 106 which the minister also mentioned was the new assessment appeal process. In the current process there are two levels of appeal to hear complaints concerning facts and methods used in determining assessments: the Assessment Review Board and the Ontario Municipal Board.
Any person, including a municipality or school board, may appeal to the Assessment Review Board on factual matters and any decision of Assessment Review Board can be appealed to the Ontario Municipal Board. If an Assessment Review Board decision is appealed, there's a completely new hearing on the facts and law at the Ontario Municipal Board.
The proposed process would have the Assessment Review Board be the only avenue of appeal on questions of fact. The Ontario Municipal Board would no longer be an avenue of appeal and it would be eliminated in 1998 as an avenue of appeal for assessments. Decisions made by the Assessment Review Board on matters of fact would be considered final.
At present, 94% of Assessment Review Board appeals are resolved at the Assessment Review Board level. In the new process, taxpayers and assessors would be required to try to resolve the matters before the Assessment Review Board becomes involved.
Where the assessor and taxpayer reach an agreement on a change to an assessment or classification, and the municipality does not object, the Assessment Review Board would make the change with no hearing or fee required, a much simpler system than the present system. If no agreement was reached, or the municipality did not agree to the change, the matter would be heard by the Assessment Review Board and payment of a fee would be required by the party complaining.
The deadline for appeal would be extended from the current 21 days to 90 days to facilitate the more informal first stage of the process. An exception to this is that in 1998 there is a 60-day appeal period. The Assessment Review Board or any party to a hearing before the Assessment Review Board could apply to the Divisional Court on a question of law.
Finally, as the minister mentioned, Bill 106 deals with the Canadian airport authorities and the transfer from the federal government to various Canadian airport authorities, which are non-profit organizations. There are going to be five airports in Ontario that are transferred to Canadian airport authorities. One has already occurred, the Greater Toronto Airports Authority. Sorry, two have occurred; the Ottawa airport has also been transferred. There will be three more: Thunder Bay, Sudbury and London.
What Bill 106 does is continue the property tax treatment these airport properties were receiving when they were owned by the federal government. They're now leased by the Canadian airport authority so in effect these airport authorities are paying the same amounts to the municipalities that the federal government would have paid before as grants in lieu.
Finally, one further change that's anticipated to the new property assessment system is that the responsibility for assessment delivery would be devolved to the municipal sector on January 1, 1998, and presently discussions are under way as to the type of structure that would be in place. Thank you. Any questions?
The Chair: Thank you very much. Are there questions for the staff? Can we start with Mr Phillips? What is your pleasure? We have 40 minutes. Shall we do two rounds of six minutes each? How's that?
Mr Phillips: Sounds good. On page 31 you mention the business occupancy tax, $700 million for municipalities. I gather the other $900 million goes to education currently for business occupancy. Is that true?
Mr Sweeting: That's true.
Mr Phillips: Can you help us on how this is going to work in the future? We're getting asked how municipalities should plan in meeting their financial obligations to the province for the educational portion of business property tax. The reason is that if they're going to be asked to give the same amount of money as they have in previous years, or if there's going to be a uniform mill rate, it has quite a huge impact on their potential revenue. Can you give us an answer of how the province plans to -- I guess it's $3.2 billion, is it? Is that the amount of money right now raised off business property tax for education that the province is going to want?
Mr Sweeting: The current amount of money raised from the commercial and industrial tax base from commercial properties is $3.1 billion, I think is the number. That is the current number. In terms of your question of what's the outlook, the government still intends to consult further and get more input on what tax rate should apply for education purposes.
There has not yet been a decision to enable municipalities to respond to the choices they face in terms of how to raise revenue. The government will be bringing forward legislation and advice at a later date, once it's done its consultation process on these particular rates of education taxes.
Mr Phillips: One of the problems we're going to have, I think, as we try and deal with this bill is that the province is going to send a bill to the municipalities for $3.1 billion, at least, for education. They're going to say, "You send the cheque over to your local school board."
I'm trying to figure out, we're being asked, is it going to be a uniform mill rate across the province? Is it going to take the same amount of money as you used to pay? The reason it's all very important is that municipalities, trying to figure out the impact of all of this, are having real difficulty. Will we know before we're asked to finish debate on this bill how the province plans to handle the education portion?
Mr Sweeting: The issue of whether it will be a uniform mill rate, which was what the Crombie panel recommended -- that is an option, but it has not yet been determined whether alternative options would be more appropriate. As I said, the government would like to consult some more on that particular question. I'm not able to answer whether the consultations would be complete by the time you've rendered your views on this particular matter, because it's still not certain at what time the process for dealing with the C and I rates will start up and when it will finish.
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Mr Phillips: I'm very curious about the business occupancy tax and the $1.6 billion that has to be recovered. You're probably in daily contact with municipalities about how they're going to implement this. The government says there is a range of options. You could put it on the residential property taxpayer, but people I've talked to suggest the most likely event is recovering it from the commercial and industrial base. Can you give us any insight on what you think, or what your conversations with municipalities indicate how they'll recover it?
Mr Sweeting: I can't give you any insight in terms of what I think. I have not got any particular evidence to suggest one way or the other what municipalities are likely to do. I'm not disputing particularly what you've heard; I have not heard anything that would allow me to answer that particular question very well.
Certainly there is a range of options. They can replicate the existing situation in terms of the overall tax burdens, or they could choose to shift some of the taxes paid in business occupancy tax to other classes of property, such as residential tax. I think the minister indicated that he felt those were all options that were viable for municipalities.
Mr Phillips: Can you take us through, because I didn't hear it in your presentation, the option for municipalities of how they would handle a different tax rate within the commercial class? How can they set those different taxes?
Mr Sweeting: The two-tiered tax rate?
Mr Phillips: Yes.
Mr Sweeting: That's still something that has not yet been finalized, the mechanics of doing that. The government needs to bring forward, I think --
Ms Crane: It's not in this legislation.
Mr Sweeting: No, it's not in this legislation, so there's got to be legislation brought forward in the next round that will be able to give you some insight into that. As yet, we have not yet finalized how a system like that would work.
Mr Phillips: It would present us with problems then, because the analogy I used today of the bank tower -- and I believe it to be right. Any analysis I've done, and I'm a one-person analyst, says that a typical bank tower could see a $3-million or $4-million reduction and it has to be picked up elsewhere. I haven't talked to one municipal politician who believes they're going to put part of the business occupancy tax on residential, so if part of this legislation doesn't include the two-tiered tax system for commercial, have you any advice for how we can assess how that's going to happen?
Mr Sweeting: I'm not sure I have any advice as to how that can be assessed. I think what you have is the indication from the minister of the intention to have a two-tiered rate structure brought forward, and until the government actually introduces legislation, I haven't got much more I can tell you about that particular approach, other than its intention is to allow municipalities to decide that commercial properties in their municipalities that have less than a certain amount of value would in fact be able to be taxed at a lower rate, and then they could choose to tax higher-valued commercial properties at a higher rate or they could choose to spread that tax around the tax base in general.
Mr Pouliot: Following on the same tone, thank you very kindly for a very accurate presentation. The minister gives a break to bank towers and the large residential occupant, and then it's becoming increasingly clear that who carries the guilt, who picks up the slack, is the small business or the smaller commercially assessed. You, as a distinguished civil servant, are here to carry the can, and you can only say so much. You don't have an opinion other than that of the minister, provided it's non-political. I understand.
My first question is one of definition, and I need your help because it seems to be nuance, and I'm quoting. Current value is defined as "the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller and a willing buyer." I take this to mean it's what the market will bear, having realized the two criteria that are established here: fee simple, unencumbered, that's standard, and then at arm's length -- in other words, there's no hanky-panky, they're not selling to a friend etc. Right? So it's what the market will bear.
Ms Crane: Right.
Mr Pouliot: If it is what the market will bear, what is the difference between what the market will bear and market value?
Mr Sweeting: I think the difference, as the minister said, relates partly to the fact that the values will be averaged. There's a plan that at any given point in time, eventually a three-year rolling average will be used to keep the values from swinging as much as they might under a system that's been known in the past as market value in terms of assessment.
It's also different in system terms because market value as a system, MVA, the Toronto-type system, is one that had much less opportunity for municipalities to tailor things to local circumstances. The whole ability to set variable tax rates subject to the ranges, the ability to phase in over a much more extended period of time, the ability to offer protection for seniors, these kinds of things are part of a system that is much different from what systems have been known in the past.
Mr Pouliot: Really, between you and me, Tom, it's minor variables.
Mr Sweeting: Well, I --
Mr Pouliot: I work with professionals all day. That's the kind of spiel that I give on a daily basis.
Mr Sweeting: You would have to comment on how significant the difference is.
Mr Pouliot: Thank you. Now, I wish to know: I live in a very small and remote community in northwestern Ontario, and I always look for opportunity. Aside from the Bre-X of this world, we have the Hemlo gold field. If I was to find a four-acre, treed property, how do I go about calling it a managed forest? Four acres is not extraordinary where we live. It's not a great deal, because we measure on a different scale. That's all there is, trees etc. But I want to beat the tax person there.
Ms Crane: The program criteria are set out by the Ministry of Natural Resources. They'll be in regulation. They aren't in this draft regulation; they'll be in regulations to come out shortly.
Mr Pouliot: Good.
Ms Crane: Basically there has to be a management plan that shows how you're going to use the forest. To meet program criteria it has to be a certain size, and it's defined. The Ministry of Natural Resources would determine whether that property would meet the qualifications to be a managed forest or not.
Mr Pouliot: Well, 3.8-million units will have to be reassessed by April of next year, 1998. It's a formidable task by any account, and when you are either tired or when you suffer from an overload, sometimes you're more prone to mistakes. How much will the assessment exercise, this one here -- it's the biggest, I imagine, ever undertaken maybe in North America -- how much will it cost?
Ms Patterson: The estimated cost is in the range of $16 million in addition to the normal operating budget in the property assessment division. It's a one-time cost for establishing the system.
You made the comment about when you're tired, sometimes it's easy to make mistakes. One of the advantages to the computerized systems that I've described is that they identify values that have been placed on property that aren't within the range that the computer would expect. It basically identifies properties where you may have made an error and lets you go back and review those properties as part of the process.
Mr Pouliot: Thank you very kindly. When you're tired, you make mistakes. Imagine if you're not trained. You have an overload on the one hand; you have now no say as to what criteria there are; you're no longer dealing with accredited people; you are dealing at arm's length, where the consortium was the beneficiary of the contract, and the criteria -- some people might be trained in one day, like instant coffee.
Ms Patterson: We've heard that concern expressed. We are recruiting some private-sector companies, where they can demonstrate that they can do the work at low cost, to do data collection only. They aren't permitted to establish the standard of construction, for example. They're not putting value on the properties. They're simply going in and filling up a checklist that we've provided them with in order to collect those pieces of information we require about what's inside or outside a house. The firms that have been on that work and have been successful are real estate appraisal and insurance adjustment firms who might well be able to do the whole job, but for the reasons you've stated we want to reserve the actual construction of the models and the valuation for people who have extensive experience in assessment.
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Very many of our own staff, all the ones who are constructing the models, in any event, have been through a two-year program involving this kind of computerized tool. So the actual value will be placed by experienced assessors. Some information will be gathered through questionnaires or over the phone or by a site visit by someone who doesn't have particularly great experience with the property assessment division but does have experience in valuing property or inspecting property for other purposes.
Mr Tim Hudak (Niagara South): Thank you for your presentation today. I think in any tax system, a couple of criteria that are important, obviously, are the ability of taxpayers to predict what the tax loads are going to be, not only in the near future but down the road significantly, to plan, and for the competitive nature of business. It's especially important too, I think, in terms of expectations for those on fixed incomes. My question is, how does this pass the grandma test, so to speak? My grandmother, on a fixed income, may face substantial changes in the assessed value of her property under an actual value assessment system or fair assessment system. How can municipalities deal with this issue of especially seniors and those on fixed incomes seeing changes in their tax rate?
Ms Crane: There are provisions in the bill that provide for the municipalities to pass bylaws for deferrals for low-income seniors or low-income persons with disabilities. The municipality will define what a low-income senior is, what a low-income person with a disability is, and it would apply to the owner or their spouse. Municipalities will have the flexibility to be able to provide for people in those circumstances in ways that they feel best meet the needs of their own municipality.
Mr Hudak: Can you give me a time frame on how this would be -- you're talking about phasing in changes. What's the date?
Ms Crane: There are two different things. The deferral of an increase is up to the municipality, how long they defer it for. They can defer it until the property is sold, if they want to do that. The phase-in is something different. The phase-in doesn't apply just to low-income seniors or low-income disabled people; the phase-in could apply anywhere the municipality chooses it to apply where there has been an increase in the taxes paid due to the reassessed value, and that could be phased in for up to eight years.
Mr Hudak: So in terms of deferrals for low-income seniors and phase-ins and changes, this gives municipalities a great deal of flexibility in meeting local needs.
Ms Crane: Definitely.
Mr Sweeting: If I might, Mr Hudak, part of the answer too could be that a number of people, including potentially the grandmother you were referring to, would in fact be getting a tax decrease as a result of reassessment, because they were paying too much tax to begin with. So the deferrals and the strategy that Marion was talking to apply particularly and are of relevance to people who may be looking at higher taxes, but certainly there are a number who will be looking at lower taxes.
Mr Douglas B. Ford (Etobicoke-Humber): I have several questions here but I'll start off with the first one: How will Bill 106 pertain to tenants and landlords, on buildings that already exist?
Mr Sweeting: In terms of buildings that already exist, essentially Bill 106 allows municipalities to maintain the tax burdens faced by the buildings that already exist, or if they choose, they have the power to reduce the burdens that are faced by those buildings and a choice as to whether or not they wish to shift some of the tax burden from multiresidential buildings, existing buildings, to other classes of property, as long as the direction in which changes take place move property classes closer to equity. So it has an opportunity to leave taxes where they are or to gradually, in whatever steps they want, reduce the taxes.
Mr Ford: Would the tenants benefit from this?
Mr Sweeting: To the degree to which the municipality's choice is to lower the tax burden, then clearly there's an opportunity for building owners to pass the reduced costs on to tenants in the form of lower rents. Whether or not it does is clearly a question that I can't answer in terms of the marketplace.
Mr Ford: One other question I had was the students; you were mentioning previously students going out and getting this information, but I think that was identified right here.
One other question: Is this thing handled inside or have we got outside sources handling this too?
Ms Patterson: The bulk of the data collection is being handled by our staff or by contract employees we've recruited. In some communities where we've had difficulties with recruitment, we have outside people doing inspections only, not putting values on property. They are people who have some familiarity with real estate as part of their background. It was one of the criteria for selecting them. They use forms that we produce for them so that they know what data we want them to collect, and those forms have to be reviewed before they get paid. So effectively there's a quality control on the information they return.
Mr Ford: Were these people tendered for this or was it publicized? How did it happen?
Ms Patterson: Yes, there was a request for qualification that was issued I think in September of last year. We were initially hopeful that we'd find somebody who would do a wider range of activities, but we couldn't find anybody who met our quality standards or who was willing to do that work for us, so we've gone back to the RFQ participants. It was publicly advertised in the Globe and Mail and it was available on the open bidding service. Those firms that were interested in doing building inspections, we've gone to them again with an RFP and asked them to bid on the work. So it was publicly tendered and the public was notified that the work was available.
Mr Wayne Wettlaufer (Kitchener): Last summer we travelled around the province on the rent control legislation and we heard time and time again about the impact of the existing legislation and how it affected landlords and indirectly how it affected tenants. The assessment on apartment buildings was so high that it indirectly caused tenants to pay more in rent. Could you explain how Bill 106 will impact the landlords and tenants?
Mr Sweeting: As I said previously, Bill 106 takes multiresidential property, puts it in its own class and says to the municipalities, through the application of ratios and those kinds of things, that they have the choice of taxing that property at the current amount that's paid by that class now. Assessment reform itself will change values between properties within the class in the municipality, so some apartment buildings might have a higher value and some might have a lower value. The end result is that as a class, apartment buildings will pay the same amount of tax or they could pay less. Municipalities have the option of setting a tax rate such that, as a class, the class pays less tax than it does now, and they can decide how much tax they want that class to pay -- than is currently the case. If they decide to set tax rates at a lower rate, then some of that could be expected to be passed on to the tenants in terms of how the landlords set their rents.
The other option the government has made available is the option for a new multiresidential class which would result in encouragement to buildings being constructed by allowing municipalities to apply a rate as low as the residential rate of tax to a new building for a period of time. That's the full extent of what Bill 106 is doing as far as multiresidential properties.
Mr Phillips: One of the things people look to us to do is to try to interpret the results of all this stuff. I've learned that not many people pay attention to the legislation but they sure pay attention to how it impacts them. There will be a bunch of people a year from now getting tax bills who will be wanting to know what happened.
One of the things I think we're owed is some impact studies. What is this going to mean? As an example, I put together my own little impact study, as I say, on the back of an envelope, but that's not going to be good enough for the public. In trying to figure out what all this is going to mean, if this will result in fairness, I assume the government has done some impact studies. Can they be now made available so the committee can figure out what the impact is going to be?
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Mr Sweeting: I think, Mr Phillips, the minister answered that question earlier when he indicated that the impact study is now under way in the form of reassessment and that that information will become available over a period of time as the assessment is completed and that is really the information that's available to answer the question.
Mr Phillips: We don't have the minister here. It's going to be very difficult, I think, for us to look the public in the eye and say, "Yes, we understood this thing," without knowing what it means. What's going to happen to bank tower taxes? One can say, "Well, it's all up to the municipalities," but let me ask a question: Did our public servants do any studies to assess what this is going to mean to property taxpayers?
Mr Sweeting: The question has been asked of the minister. I believe the minister has answered that question in the past. If you still are looking for answers to that question, my advice would be to ask him as well, in terms of information, what's available.
Mr Phillips: I'm going to have to.
The seniors assistance: The simple way I look at it, and I've talked to some municipal people, it looks like it's going to work kind of like a reverse mortgage, that the seniors are still going to owe the money; it's just that they don't have to pay it. It'll accumulate against their home, and when they sell it, then that's a bill owing to the local municipality, as I say, kind of like a reverse mortgage. Is that the easiest way to think about what's intended here?
Ms Crane: That's one way it could be structured. Again, it's up to the municipality to decide how the deferral will work, but certainly that's one way the deferral could work and probably a common way municipalities would choose to have it work.
Mr Phillips: My impression in listening to all of this is that the policy thrust here is -- and I think the minister has said this in the past -- that there are many businesses in this province paying an unfair share of taxes. I think there's a ratio of four to one or something like that in some municipalities. The policy thrust is to get the business property tax more in line across the province. Am I right or wrong on that?
Mr Sweeting: Certainly you're correct that the current rate at which business pays tax, relative to residences, can vary significantly and can be as high as three, four, five times the rate of tax, or the relative amount of taxes, as paid by residential property. Certainly the provisions of Bill 106 are aimed to ensure that circumstance doesn't get any worse and indeed provide the tools and powers to the municipalities to allow choices to be made to narrow the differentials if that's in the community's interests.
Mr Phillips: A couple of almost technical questions: One is, in the Crombie recommendations the definition of "current value" seemed a little bit different from the one you used or that was in my briefing notes from you people. The definition of "current value" is: "Current value is the amount of money a parcel of property, land and buildings would realize if sold at arm's length." The Crombie one seemed to be a bit different: "Current value is to be determined on the basis of current sales and rentals, not on speculative value." Is there any difference between the Crombie "current value" definition and the one that's proposed here?
Mr Sweeting: It remains to be seen whether or not there will be a difference in practice. As a starting point, though, the Crombie recommendation was one that has often been said to have a current use aspect to it which essentially looks at the value of the property in terms of what it would be sold for to someone who is doing the same business, not necessarily to what the willing buyer and seller in the marketplace would pay.
For many properties, for most properties in fact, what someone will buy it for and what it's used for are the same thing. In some circumstances they can be different. Occasionally the market will pay more for a property than what it's currently used for; sometimes it'll pay less than what a property is currently used for. In those particular situations, under the "current value" definition, the value would be assigned according to what the willing buyer and the willing seller would pay, regardless of its use. There are provisions, as Marion said, that would enable the minister to determine situations that would result in a current use approach being applied rather than a current value approach. The one place where that is going to happen for sure is in farm land, because land that's assessed for farm purposes is assessed on the basis of what farmer-to-farmer sales would be.
There is the potential for difference. Whether there will be or not we'll determine over time in terms of whether there's any response on the part of the minister to any situations that are identified for considering current use rather than current value.
Mr Pouliot: Thank you very kindly. Our small village acquiesced in the need for market value assessment some time ago, a while back. We were, I would imagine, among the first ones, or the first wave to comply. Our simple philosophy was one unit vis-à-vis the other unit in a defined vicinity; that was our basic definition of assessment. Oh, we didn't have yours or other expertise. It would have been very welcome.
We also knew very well that in the final analysis you have to reconcile the bottom line. We know today that if you're large, if you're big as in "bank tower" and others, very successful, you will get a benefit. You will pay less. We also know now, we suspect, that apartment buildings will get a benefit. They will pay less. We know that this city of Toronto will be reassessed.
In this fascinating world of sewer and water and other services, you have to maintain the service, and they cost money. Who's picking up the slack for the bargains? There is no secret here. You need not be a mathematical genius emanating from Toronto or Harvard. It's simple: residential, commercial, industrial. It's not much of a shell game. If industrial pays less, you pass the buck to commercial or residential. What impact do you see? You've got to pay Harvey the police person and Jane the firefighter etc. Who's picking up the slack?
I don't wish to even be lured by the temptation to be seduced by the list of downloading, because this is an eternal lament: "We don't know. We've got reassessment. We've got January 1, 1998." You've got your fiscal year of 1998, which is three months after, and it's on and on. Suffice it.
People are asking me those questions. You see, I have to go and knock on doors to make a living, sir, and you're my friend, I know you will help me. I don't have the security of tenure. But much more importantly, I must answer those questions because those people pay for all that. What do I tell them? I don't have the answer. I asked Municipal Affairs, I asked Finance. On the eve, because we're only a few short months before the election, I asked them about 50% of the welfare, if you're on general assistance, the drugs if you're on medication. They said, "Well, is it true, sir, that I'm going to have to, as a municipality, raise 50% of the cost of what is on the formulary?" They've never been exposed. They are municipal council people. Then they go to the old folks home and then they go to the ambulance bay and they see that the roof is leaking. What about policing? You see, we need all these things. Assessment is one.
We know that they're not trained for the majority of places. We also know that it's going to cost approximately $30 per house, and they're going to overload them. Out of the $30, she or he, which is the assessor, will take in about $12. The other $18 is going to go to the ABC, the consortium that bid, so some business people are going to make a killing out of this. I guess there's nothing wrong with this. But this is a rushed job, and I'm concerned that it's only going to impose cumulative damage on a system which is already overloaded.
This is one more big question mark where you could have taken -- the Crombie subcommittee says, "Take your time, don't rush things." But you're rushing. You're rushing on all fronts. When you finish your work here at 7 or 8 o'clock every day and you go in the privacy and comfort of your apartment or your house, you try to put these things in perspective. I've noticed you've been losing weight lately and I'm concerned about your health. What do I tell my constituents?
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Mr Sweeting: You can reassure them I haven't lost any weight.
I'm not sure what you'd tell your constituents. I'm not sure what the question was, actually. The bottom line is that municipalities have always struck budgets to pay for services that are necessary for that municipality, and what this bill does is essentially continue the requirement for municipalities to levy local taxes and give them new powers to do that.
Mr Pouliot: But aren't you afraid they're being lied to? I mean, I'm not saying that the ministry --
The Chair: I don't believe that's acceptable, Mr Pouliot --
Mr Pouliot: Okay, it's not.
The Chair: -- and I understand now that your time has expired, so perhaps we'll just move to the government side.
Mr Pouliot: But we want answers, Mr Chairman. This is very serious. We want answers to that question and we're not getting them.
The Chair: The seriousness of the situation is why we're in committee, Mr Pouliot. Thank you very much. We're moving to the government side.
Ms Bassett: One question I'd like to ask that several people have been putting to me recently is about gross leases. If the municipality, with the business occupancy tax, passes on and wants to recoup the revenues for gross leases, will the lessor be able to download the cost to the lessee in fact, the business tenant?
Mr Sweeting: If you're referring to the situation of leases that don't have any pass-on clauses relating to taxes, there's nothing in Bill 106 that changes the relationship that exists between a landlord and a tenant. If it's a gross lease situation, then clearly it would take a renegotiation of the lease or the passage of time in order to manage the implication for the landlord. Most leases are net leases --
Ms Bassett: I know.
Mr Sweeting: -- and so in those circumstances the changes that happen to an owner of a property are typically passed on through changes to the rent payments for the occupants of the property.
Mr Hudak: I had a question about conservation, coming from the Niagara Peninsula, part of the escarpment, and also some recent developments in terms of putting aside the bog as conservation land and for public access and such. It's a very important issue in my riding, and I think the Chair's probably concerned too about his riding. Could you help me understand how the new act will treat conservation land, how that differs from currently?
My second question, particular to the Niagara Escarpment plan: I understand those lands will now be eligible for an exemption from the tax. I didn't quite understand if they are currently exempt or if this is a change in the policy.
Ms Crane: They currently receive a rebate, and basically what Bill 106 does is extend the rebate program. Anything that qualified as conservation land under the rebate program would qualify under Bill 106 for an exemption from property tax for eligible conservation land. Those are yet to be defined in regulation.
The basic premise is that we're taking the definitions that applied in the old program. There will be a couple of differences regarding land owned by conservation authorities, but basically the way it operates right now whereby the province determines what are the conservation lands and then if a person is willing to maintain those lands in the ways that are required of them to get the exemption, that's the way it will operate. All those details are yet to be worked out exactly, how that will be, but I think we can say the exemption from tax would apply to the same properties currently receiving the conservation land tax.
Mr Hudak: To make sure I understand it, the property then qualifies through regulations.
Ms Crane: Yes.
Mr Hudak: It will be a simple exemption as opposed to going through an entire rebate process.
Ms Crane: Definitely. Yes, that's the way it works. There'll be no rebate. Once it's identified as eligible conservation land, then there will be no rebate. It's exempt from tax.
Mr Spina: We're going to switch from conservation to highly used land, in the name of airports. You said there were some changes. I'm not seeing any right now, other than the fact that all we're saying is the grant in lieu will continue even though the properties are being transferred from Transport Canada to the GTAAs, as they're known, or the CAAs.
Ms Crane: What is happening is the Canadian airport authorities are leasing the airport land from the federal governments, a lease of 60 years, which would mean this is no longer land owned by the federal government, would no longer be land that would be -- if we didn't put this provision in Bill 106, the airport authorities would be liable to full property taxation. What we're doing is we're continuing the tax treatment the airports currently receive, recognizing the importance of the airports to the economy of the province and the jobs they create. So the amount of money that's being paid to the municipality right now by the federal government will continue to be paid by the Canadian airport authorities to the municipality.
Mr Spina: There's only one problem I have with that. I can fully appreciate that money going to the municipality in cases like Thunder Bay, Sudbury and London. Where I have a problem with it is this: You have two international airports, Pearson and Ottawa. The problem I have is that the grants in lieu are being very strict in terms of, "You just happen to fall within Mississauga's boundaries, so it now goes to Mississauga." But the reality is that it should be either the region or the members that sit on those airport authorities, because the GTAA here in Toronto, as you know, has Etobicoke, Mississauga, Brampton and Vaughan that also sit on that GTA authority.
In my opinion, if there are going to be grants in lieu of taxes, that, I think, that should be shared or split among those representative municipalities or representative jurisdictions. Now Hazel ain't going to like that, I know, but tough noogies, because frankly she isn't the only one providing services to the airport. The other jurisdictions are also obligated to provide services and infrastructure to that airport, and get nothing in return.
Ms Crane: Tom, do you want to answer that in terms of the payments in lieu, what will happen, just in general.
Mr Sweeting: The issue you've raised is one of the issues we have to deal with yet at staff level and advise the government on, what to do with payments in lieu type things, and because the root of this is in payments in lieu, I would think that's an issue that still is going to be looked at in terms of the distribution of the payment that's indicated under Bill 106, whether or not it would be strictly lower-tier in which it's occupied or whether it would be another distribution mechanism for it.
The Chair: That brings us to the conclusion of our time with the staff. Thank you very much for taking the time to present to us and the for completeness of your presentations.
ONTARIO HOTEL AND MOTEL ASSOCIATION
HOTEL ASSOCIATION OF METROPOLITAN TORONTO
The Chair: We now welcome the Ontario Hotel and Motel Association, Mr Seiling. Welcome, Mr Seiling. We have 20 minutes together. If you would like to start with your presentation, which I believe has been distributed to the committee, we can fill any remaining time with questions.
Mr Rod Seiling: For those of you who are looking at my presentation, I must apologize. I understood Ms Bassett was going to chair this hearing; you've not had a sex change. I do apologize.
I want to thank you, Mr Chairman and members of the committee, for the opportunity to appear here today. I am appearing as president of the Hotel Association of Metropolitan Toronto with its 32,000 rooms, 18,000 full-time employees, billions of dollars in investment and $1.2-billion economic contribution annually to this economy here locally, but also as president provincially of the 1,000 members of the Ontario Hotel and Motel Association.
Generally speaking, Bill 106 proposes to provide a fair and more equitable property tax system for the province, and we applaud that. It's long overdue. Previous governments have backed away from it despite studies recommending a movement in that direction. Specifically in Metro, which we believe may be the best example of the unfair property tax system, it has been the major reason that the industry has not been economically viable.
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For example, property and business taxes account for 61.5% of an average hotel's GOP. It you add in the 3% reserve which hotels are supposed to add in for normal-wear-and-tear replacement, that figure jumps up to 79.8%. I don't know of a business that can survive anywhere with those types of numbers. The reason for this, of course, is that hotels have been assessed at twice the level of assessment as other commercial properties, despite the fact that everyone recognizes that they are commercial properties, and in fact, are taxed as such all across the rest of the province.
The impacts of this have been bankruptcies, lost jobs and lost capital reinvestment, as owners simply have not been able to provide the necessary capital reinvestment in their properties they know they needed to do to remain competitive, and have had to cut back on jobs to try and maintain cash flow and be able at least to pay the property taxes. Bill 106 corrects this inequity.
We do, however, suggest an amendment to Bill 106, specifically the section proposing to allow the minister to create new classes of property for special rates upon the request of a municipality. I believe that is section 2(2)(e). We believe it could produce undue pressure on the minister of the day. For a request by a municipality in the public interest that no one should object to, the legislative process would allow open consultation. As our industry and others I'm sure have witnessed, with what can happen on the local scene with respect to the municipality, we're not at all sure that we could wake up one morning and find out the request has been passed and moved on to the minister of the day. Surely it would be totally ironic that with 106 providing fairness and equity in property taxation, the same bill could provide the means to undo that same fairness and equity.
We also have a concern over the setting of the variable tax rates. It's more of a caution to the government that, if not properly set, they could be utilized to prevent the fairness and equity reaching those who are to benefit from Bill 106. In other words, municipalities could use these rights to thwart the fairness and equity provision.
Under business and occupancy tax elimination, we support its discontinuance. There's a large amount -- about $200 million, we understand -- that is annually uncollected. With this assuredness by municipalities that their total assessment is now going to be collected, we believe that they'll be able to lower their requirements on what they need for taxes on an annual basis and thereby reduce the tax and the mill rates or the new tax rates that they assess on residents and businesses.
What we do ask the government, though, is to ensure that whatever amount of this revenue the municipalities do move to recapture, it is done fairly and equitably; in other words, that a municipality cannot target a sector or a business disproportionately.
With respect to the three-year average, we totally support the new assessments being based on three-year rolling averages. It avoids the spikes prevalent in the current system. It helps preclude a tax bill based on a totally unrealistic assessment bearing no relation on true value or ability to pay. Anyone who has had their recent assessments and are continuing to pay in 1998 know all about that. Businesses for the most part don't mind paying their fair share. They want to know that it's predictable and fair and that they can budget for it.
With respect to the phase-ins, obviously we'd prefer immediate relief rather than the proposed phase-in period of up to eight years. My members in Metro Toronto have been subsidizing the business and residential community for 25 years. We would hope that the government ensures that during this phase-in process the reductions are not just proportionately held out to the end of that phase-in period, that at the very least they're put forward in a proportionate manner.
In summary, Bill 106 moves to provide fairness and equity to taxpayers all across this province, including our members. If you notice on the charts that are provided with my presentation, hotels here in Metro have been saddled with the highest property tax per room, close to $5,000, in North America. This legislation, we understand, will help to rectify it. It won't get us all the way there, but at least it will make us more competitive in the global marketplace. To succeed, we need to have this fair property tax system. When we do receive it, our members will be able to compete fairly, to reinvest and to hire the people that they need to provide the services they know to be successful. Thank you very much.
Mr Pouliot: Thank you very much. It's a renewed pleasure, Mr Seiling, and one more time we're the beneficiaries of your expertise and dedication.
I need a point of clarification which will lead to my question: On the agenda, it says 3:30, Ontario Hotel and Motel Association, Rod Seiling, yourself, president, and then your presentation says, and I'm quoting page 1, "I'm appearing here today as president of the Hotel Association of Metropolitan Toronto.
Mr Seiling: I'm president of both.
Mr Pouliot: You are president of both. The reason why I wish to make the clarification is there is a slight discrepancy.
Mr Seiling: I think I said that in my verbal presentation.
Mr Pouliot: Okay. Thank you very much.
Do you see any difference, for instance, and I have your rate here, hotel tax per room, with a motel operator? Will they be impacted in the same fashion, in your opinion?
Mr Seiling: Oh, most certainly. The level of taxation, if you're talking about here in Metro Toronto, the level of assessment of hotels has been approximately twice that of other commercial properties, despite the fact that everyone recognized -- and they are treated as such across the rest of the province -- as commercial properties. There were countless recommendations to fix this anomaly. Unfortunately, for 25 years it's never been fixed, and as I've said in my presentation, it's been the major reason for bankruptcies, lost jobs, lost investment.
Mr Pouliot: Fair enough. When you compare Toronto to other major Canadian cities, do you feel that taxation policy plays an important part in what we see as a fairly significant difference between what you must pay for a hotel room here compared to other Canadian cities?
Mr Seiling: It has a great deal to do with it. Property tax is the largest uncontrollable expense a hotel has, and it affects its competitiveness in a number of ways. One is the ability to provide services at the level that you must to remain competitive, both human services and amenities. The functionality of a hotel today is just as important as location, or more important. Owners cannot reinvest if they're not earning a return on their properties. Currently speaking, under the current system, by a survey conducted by Price Waterhouse, only 11% of the hotels in Metro Toronto were earning a return equal to or better than simple bank interest. All the rest were losing money.
Mr Pouliot: I'm just running a list here. Congratulations. You've just entered the club. You are the first presenter, but we've had some expertise from the ministry, and they've already said if you're the large industrial sector you will pay less taxes; if you are the bank towers, for instance, you will pay less taxes. Now the apartment buildings will pay less, so I add to the banks and the apartments -- congratulations -- the motels and hotels. As we go through this exercise, we'll have to find out who's going to pay for that. Congratulations. It's cause for celebration.
Mr Seiling: Are you suggesting that it was right that hotels continue to subsidize, to the detriment of people who've lost their jobs and owners who've lost their businesses because of an unfair system?
Mr Pouliot: No, no. I'm just thinking about your clients, people that pay for it. I'm not upset or anything. I'm just saying at one time you're going to have to collect taxes from someone. If everybody saves here, where does the money come from? That's all I'm saying.
Mr Seiling: For the most part, just for your information, the hotel sector has been subsidizing the rest of the commercial sector unfairly for 25 years, and 99% of that will come from other commercial businesses.
Mr Pouliot: That's great. Thank you, sir.
Ms Bassett: Thanks, Mr Seiling, for your report. We're talking so quickly it probably went by me, but I wonder if you would just clarify again. Since one of our government's main aims is to create an environment that's conducive to stimulating the business environment, certainly for hotels, how would changing the property assessment, as we are planning to do, help stimulate growth in our hotel industry?
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Mr Seiling: Hotels have been looking for fair property tax treatment for some time. In the absence of that, there have been owners who have lost their businesses. They've had to cut jobs and forgo reinvestment. All that is counterproductive to a stable and thriving hotel industry. With a fairer property tax system which will produce lower property taxes -- hotels have never been asking for special treatment, just fair treatment -- they will be able to reinvest in their property, rehire some of the people they've let go and upgrade and be competitive in the marketplace.
Hotels here, while they compete with one another, compete for business with Atlanta, with Orlando, with Las Vegas, with London, England. We're in a competitive global marketplace, and if our facilities aren't up to snuff, then people are going to forgo it and not come here. Hotels are, I would say, the bedrock of the tourism industry. It's the world's fastest-growing industry. It's the second-largest industry here in Metropolitan Toronto, Toronto being the gateway to Ontario's tourism industry. It represents about 40% of tourism receipts. As they come in here, through the hub-and-spoke phenomenon -- you pull them into Toronto and then feed them out to the province -- they're going to be staying over. If people come here and they see that we have the facilities in sufficient supply and up to the quality they expect, they're going to tell their friends and they're going to come back again.
Ms Bassett: The reassessment will make hotels move in that direction?
Mr Seiling: Yes. The current system, as we've had independent people take a look at it, the major reason for the non-viability in an economic sense has been the property tax system. As I said earlier, when you're paying 70% to 80% of your GOP in property and business taxes, it's virtually impossible to be profitable.
Mr Ford: I'm just curious: This new trade centre downtown must be a tremendous asset for your business.
Mr Seiling: Yes. The new trade centre, along with the opening of the expanded convention centre later this summer, both are going to help to stimulate demand for the hotel industry. It's now the third-largest trade centre in North America. So with the expanded capacity, we're hopeful they'll be able to sell new trade shows and bring in people from around the globe to come here, and in the process find out what Ontario has to offer and go back and rave about what a great destination this is.
Mr Ford: You people must be working in conjunction with these people in promoting this business, is that right?
Mr Seiling: Yes, we work very closely with the visitor and convention bureau and the trade centre and all the people involved. We must cooperate to be successful.
Mr Phillips: Help me out a little bit because I can't quite remember: How did your property taxes get so high? Is there a special assessment placed on hotels?
Mr Seiling: Mr Phillips, I've heard a number of stories. It goes back so far that in all honesty no one can actually remember. We believe it revolves around an appeal at the Hotel Toronto some years ago. It was set there and it was left there, knowing that it was high, but the assessment system was going to be fixed very shortly. "We'll just leave it and when that's fixed, everything else will be looked after." Well, 25 years later, we're looking now for Bill 106 to finally fix it.
Mr Phillips: Just in terms of the impact of Bill 106 as you assess it, what do you think it might drop your tax per room? What's the best way for us to look at it? How much in total do you think it might be?
Mr Seiling: I couldn't guess at that. There are too many variables right now: the reassessment process, the phase-in provision, the variable tax rates. We can't make a prediction whether it's going to be X% or Y%. In having discussions with ministry officials who are responsible for the reassessment process, we've been assured that there are going to be property tax reductions. It won't be across the board, because as you know -- you have a fair amount of knowledge of the system -- the level of assessment varies between the respective municipalities now, from a low of about 5% out in your end, Scarborough, to the high of 13% in downtown Toronto here. The impacts will be different from city to city across Metro.
Mr Phillips: But is it $1,000 a room, do you think? I'm just trying to get some feel of how much help this is going to be to you.
Mr Seiling: I don't want to make a guesstimate simply because there are too many variables. If I knew the answers to those, then we could be more specific as to the exact amount.
Mr Phillips: You cautioned us about providing more flexibility to have additional classes of property tax. Your concern is that you may get right back into the same situation down the road, is it?
Mr Seiling: Very much so. Bill 106 moves a long way to providing a fair property tax system for everyone. We think it could provide undue pressure for the minister of the day if a municipality would come forward and say, "This is in our best interests. We need to have this special class. Just sign this regulation," and away it goes. We believe that if it is in the public good, then surely that municipality and the minister of the day will have no problem taking it forward to the Legislature and having an open consultation process. History has shown in the past that's not going to be guaranteed at a local level. We need to have it at this level to ensure that we don't wake up one morning and the fairness that we got out of 106 has all of a sudden been signed away by a future minister. We're asking for that protection and believe that surely if it's in the public good, no one will have a problem taking it to the legislative process.
Mr Phillips: Not deal with it through regulation but rather through legislation.
Mr Seiling: Correct.
The Chair: Thank you very much, Mr Seiling, for appearing before our committee with your presentation.
SOUTH ROSEDALE RATEPAYERS' ASSOCIATION
The Chair: We now have the South Rosedale Ratepayers' Association. Welcome to the committee, Ms Wells. We have 20 minutes to spend together. If you would like to start with your presentation, we could fill any remaining time with questions.
Ms Tanny Wells: Members of the standing committee on Bill 106, my name is Tanny Wells. I am a member of the executive of the South Rosedale Ratepayers' Association. I'm here this afternoon to present the views of the association on Bill 106.
Our association has long opposed market value assessment as a basis for taxing property. This opinion has been expressed by others before me in our association. In fact, I represented the SRRA here the last time that MVA was being debated under a former government. At that time we had strong allies among the Tory members of the then opposition.
Our position has not changed because nothing new has occurred that would make us change that policy. We have had a long-held policy regarding market value assessment because we view it as an unreasonable way to tax property. We also believe that the imposition of MVA will have a very deleterious effect on the central neighbourhoods of the city.
Over the years our submissions have not been to maintain the status quo but to find a fair, stable and efficient system of taxation which would reflect value for services received. In our view the property tax system ought not to be another wealth redistribution scheme, because we know too well that a person's wealth is not accurately measured by the fluctuating value of their home. Income taxes are what we would suggest to be a fairer way of accomplishing this wealth redistribution.
We were cheered when our member of the Legislature campaigned against market value assessment. It was and remains a very important issue in our neighbourhood. He was right to choose it as a campaign issue. When our member became the Minister of Municipal Affairs, we were quick to ask to meet with him on this subject. Together with the other ratepayer organizations in our constituency, we asked to be involved with the process of developing a reformed assessment system which we believed would be philosophically acceptable to a Conservative government. The minister met with us on several occasions and he agreed to look at other means of assessing property.
Several members of our association have spent many volunteer hours, in fact days, studying alternative forms of taxation. We have worked with the taxpayers' federation, other ratepayer groups throughout the province, the assessment reform working group and of course the city of Toronto.
I want to emphasize again here that at no time have we advocated the retention of the status quo as an option. Historically, we have been proactive. We had as our criteria a system that would be (1) fair, equitable and transparent; (2) efficient to maintain; (3) stable; (4) simple and inexpensive to implement.
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After a lot of work and consultation with experts in the field, the city of Toronto held a two-day seminar in November which brought together experts from other jurisdictions from around the world who had experience with other tax and assessment systems. They were the following: (1) the British, who had to very speedily devise a system to replace the infamous poll tax; (2) Tel Aviv, which has a pure form of unit tax; (3) California, proposition 13, a market value system where assessments only change when a property is sold; and (4) the BC actual value assessment system, on which we were told the province of Ontario was modelling its system.
We were disappointed that the provincial authorities, and our member in particular, did not take an active part in this outstanding event. There was much to be learned there about alternative methods of taxation.
This by way of history is a description of who we are and why we are here: We want our opposition to market value assessment, in whatever guise it comes, noted. The South Rosedale Ratepayers' Association is the oldest one in the city. As such, we know enough to argue the points that can be argued in this venue.
You've heard that we oppose the very idea of market value assessment. Now on to the specific provisions of Bill 106.
To begin with, the legislating of the term "current value," part I, subsection 1(3), is a cynical linguistic ploy which may fool some of the people for a short time, but don't count on it. Since the provincial election, when MVA became a dirty term, the same concept became known as AVA. When the Supreme Court judged that MVA and AVA were in fact the same thing, a new name was found. It is "current value." This according to the subsection referred to "means in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer." In fact, the subsection simply deletes the word "market" and inserts the word "current."
To an unsophisticated person, even to a highly educated lawyer, there is no difference between MVA and CVA. There will certainly be no difference in the assessed value and therefore the tax effect of MVA or CVA.
During the last election our elected member, the Minister of Municipal Affairs, promised, "My party and I will never support the imposition of MVA in Metropolitan Toronto." We understand there is a problem here. This government specifically campaigned against MVA and therefore, we submit, against CVA as well.
We understand there is a reassessment of every property in the province which is currently under way. The monumentalism of this task is truly breathtaking. It is the largest reassessment ever undertaken in North America. The outcome of this undertaking is likely to be a huge number of appeals; this according to the assessment office itself. The private sector refused to become involved in the process because it was felt by many that the job just could not be done properly within the given time frame and with the funds available. The BC assessment office similarly declined to become involved.
The city of Winnipeg undertook a similar operation several years ago. The assessment criteria were changed but the existing assessment staff were used to implement a new system without retraining. This is what is happening in Ontario right now. The results in Winnipeg are worth noting: The city lost $54 million more than it had budgeted in reserve due to reassessment inaccuracy. Scaled to Ontario's population size, that equals $800 million. These losses would have to be covered by the taxpayers who live in and own property in the municipalities. The only societal benefit of the reassessment process is that it provides years of steady employment for the employees of the assessment offices.
As a ratepayer organization, we must object to such a cavalier attitude to the assessment of value on our assets. We understand that the cost of implementing and maintaining this costly system of assessment will be paid by the local municipalities -- once again a download of provincial cost to the municipal level, and in our case the homeowner.
We're also concerned about a number of issues surrounding the implementation of market value assessment.
The local option for transition: Our overriding concern is that it should not be a local option. It is the province that is responsible for the reassessment. It is the province that should be held responsible if the municipalities do take advantage of these options or do not, as the case may be.
The bill states that the local municipality may buffer the impact of the new assessment in several ways, and we have several concerns around this provision. First is in terms of the elderly and disabled. The bill specifies that only low-income persons are eligible, but what are the criteria for low income? It is our understanding that income tax information is not available to those who would make that distinction. Second, the bill allows the local municipality to allow current use valuation on specific properties, as well as to impose changes over a number of years so as to soften the impact of changes in taxation.
These options should be retained by the provincial level. Given that the implementation of Bill 103 occurs, these transition rights will be left in the hands of the megacity council. Those of us who attended the Metro council meetings at the time of the last MVA debate in 1992 will not soon forget the division and angst created by that debate. We would not want to see them repeated again. It was a very sad time for our community.
Given the fact that there will be a finite amount of tax revenue required by the megacity, any softening of the impact of increased taxes which will accrue to the downtown core will mean others who are primarily from the Metro suburbs will be slower to reap any benefits which they will expect. To leave this option as a local one is in our view asking for trouble.
One of the most worrisome aspects of Bill 106 is that tax policy is not sufficiently refined. To our knowledge, no impact studies have been done. No one really knows how these changes will play out in reality. Time and time again we have been warned of the economic fragility of our business core because it is so highly taxed. We believe that tax policy has to be carefully tailored to ensure the viability of our urban core and our neighbourhoods.
We urge the members of this committee to recommend that Bill 106 be withdrawn for the following reasons: (1) Bill 106 violates clear electoral commitments; (2) there is insufficient time to ensure accurate assessment and it therefore exposes our community to unacceptable risk; and (3) the tax policy component needs redesign.
We believe there is a will to reform the assessment system. We know there are many associations and organizations across the province which acknowledge that the existing system is neither fair nor viable. It is in everyone's interest to get it right this time.
The government has been in a great hurry to change the way in which many things are done in this province. That is to their credit, but it is important that these changes be changes for the better. The changes embodied in Bill 106 will face many homeowners and business owners in the large urban areas with huge tax increases. Surely this would not be a welcome change. We urge you to ensure this does not happen.
The Chair: We have time for three minutes per caucus for questions. We'll start with the PC caucus.
Ms Bassett: Thank you, Ms Wells, for your presentation. I just want to put a few things on the record. We feel of course that the new AVA system is quite different from the market value system -- you say they're the same thing -- the reason being that municipalities think current value is going to be fair to all taxpayers. Unlike the pure market value system in Ontario, it will ensure, for example, that farm land, managed forests and conservation lands are addressed on the basis of current use only. In terms of the assessment that's being done, it will be done on 1988 --
Ms Wells: No, 1996.
Ms Bassett: Let me rephrase that, on 1996 values, whereas the last time, in 1992, to which you referred, it was done according to 1988 values. The 1996 values, as you know, are absolutely at the most level and they don't have the spikes in them and the high rises that 1988 had that were out of kilter. People's assessments will not go jumping up.
Second, some people's assessments are going to go up because they haven't been re-evaluated since 1940, if ever. That we feel just is not fair. You included that at the beginning.
Ms Wells: We too are looking for a fair system, and I agree with you that the current use options are very important. Where those apply in the city, they should apply. That's fine, but we feel that value-based is not that. We also don't think there's a huge difference. You choose your date to put it in at, so it's better in 1996 than 1998 because it's not as high.
Ms Bassett: Except, if I could intervene, we're having a three-year rolling average, so that will again level it out a bit.
I want to point out that when you mention unit value, it does not include location, and I feel that location is a very important component.
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Ms Wells: We would not be recommending unit either particularly, but there are some very interesting, much more stable things that don't require the constant updating and this huge amount of money that is being spent on the assessment.
England is a very good example of what happens. They had a real political jackpot they had to get out of. They put in a very stable system with the banding which, once it was in place -- it basically is a combination of a lot of things, but it's been very stable in terms of not having unexpected changes for people just because they are still living in a house and somehow or other the value changes and their taxes go up.
Ms Bassett: The municipalities, though, are going to be able to ease in the transition over eight years.
The Chair: Thank you very much. If we could move to the opposition.
Mr Phillips: Just a comment and then a question. You need a microscope to see the difference between market value assessment and this. It's like two identical cars: One's dark blue and one's black. That's the only difference. This is market value.
My question is, when Mr Leach was talking to you before the election, did he indicate what his government planned to do for property tax reform? I know he was against market value assessment and promised he wouldn't do that. Did he ever indicate what they were?
Ms Wells: I don't think he ever indicated exactly what he was going to do, but he certainly came out with a piece of paper that was delivered around the neighbourhood very close to the election indicating that he would never -- that was a direct quote from his pamphlet which I read, that he and his government would never do this to Metropolitan Toronto.
Mr Phillips: It might be useful to have that just so that we know the background on it. In terms of the impact on communities, has your organization -- we too, by the way, are looking for the impact studies. We find it fairly incredible that we're proceeding without some idea of how it's going to be. Has your organization been able to do any calculation of what you think the impact might be?
Ms Wells: It all depends on what happens. At the moment there would be some big jumps in the older houses in the neighbourhood, there's no question. The new houses, there probably would not be. It all depends on whether anything is going to be able to be done with the social welfare costs and what gets downloaded on to Metro. It really depends on how much money the taxpayers of Metropolitan Toronto have to come up with, whether it's going to be as high as 1.4% of the price of their house as of last June. It could be.
Mr Phillips: So you haven't had a chance to do any of your own impact studies. Has your organization requested, because we're having trouble getting them out of the government through freedom of information and anything like that, the impact studies?
Ms Wells: The city of Toronto indicated that they were trying to do that and that if they were to get them, they would get them to us. No, we have not been advised of any, and the comments have been made, I'm sure, that if they were there, we would have seen them by now.
Mr Pouliot: Thank you, Madam Wells. Assuming that one is reassessed, and in your case those are the people you so ably represent, under actual or current value assessment or under market value assessment we're talking about the same thing in terms of your reassessment. There isn't a margin of difference. The answer in the difference is with the detail, and it mostly applies elsewhere, but in terms of reassessment, you would hardly likely see any difference under the system that you opposed yesteryear and the system that you oppose this year.
Ms Wells: No.
Mr Pouliot: I am not familiar with the intricacies and the history of the city of Toronto, but there's one phrase among others in your presentation that caught my attention and I would like you to help me.
You've indicated that the unit that you occupy, the residence where you live, is not a barometer. I know you did not use "barometer" or "gauge," but it's not necessarily the way we judge a person's wealth and/or ability to pay. A person's income would be a determinant. The vehicle that a person drives, the place where a person resides, usually those are traditional barometers.
They're not always foolproof, I agree with you, because there's a choice in terms of lifestyle, but quite often if I was to go into the better housing unit, I would have to make a certain amount of money in order to reside there, to afford that. It's quite simple. It happens to all of us at different degrees. If I was to go to an automotive dealer to buy a vehicle, I can only afford this range and this range, and that's okay too. What else can we do? You would not be suggesting that we all pay the same?
Ms Wells: There's a school of thought that would say yes, you pay for the services you use. That's what municipal taxes cover. That is one school of thought. I don't think at this moment we're prepared to say exactly what it is we would like to see. We just know that there are other fair systems that have been in place. Personally, I would look at the English system as one.
But I just want to answer your question a bit about the fact that somebody's house is or isn't a barometer of their wealth. Of course it says something, but if you've lived in a house for 20 years, and sometimes in some of the downtown areas -- it's not necessarily true in south Rosedale, but right across Yonge Street from us and even in our neighbourhood there are people who have lived there for many, many years. They're on fixed incomes, and fixed incomes haven't changed.
Mr Pouliot: You're right. The dilemma we're in is that the same thing can be true for the very same person who lives across the street and pays more taxes.
The Chair: Thank you very much, Ms Wells. We appreciate your presentation to the committee today.
ONTARIO PUBLIC SERVICE EMPLOYEES UNION
The Chair: We now welcome the Ontario Public Service Employees Union, Mr Faulknor and Mr Presley. Welcome to the committee, gentlemen.
Mr Will Presley: We don't have enough copies for everybody. We will have some copies for you after we're done, but we'll read from our brief to begin with.
First, to introduce ourselves, good afternoon. My name is Will Presley. I'm the northeastern Ontario vice-president for OPSEU. I'm also a professional in the property assessment field and a graduate of Cambrian College. I personally have worked on three market value reassessments in my occupation.
Mr Ed Faulknor: My name is Ed Faulknor. I am chair of the ministry employee relations committee representing OPSEU. I also am and have been with the assessment function for 30 years this year.
To initially start off, we want to make it very clear that we are not in any way opposed to the concept of market value. In opposition to the individuals who were here before us, we think there is merit in the concept of market value or some variation. Our problem is very simply a time concern. We have very serious concerns about the fact that the existing government has chosen to implement this particular system in what we consider to be a rush, and that rush, we feel, is going to affect the quality of the product that we are going to get. The government's timetable in this particular case will, in our opinion, result in probably the poorest quality at the highest price.
A reassessment requires an immense amount of data, analysis and calculation. Traditionally in Ontario we have produced reassessments on a four-year cycle. After all properties have been reinspected, revalued and the assessment roll returned, the staff will have four years to redo the whole project again. The assessment division has only been given the staffing and resources to meet that particular four-year cycle.
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In addition, under normal circumstances, when a reassessment project takes place, quite often staff from other areas that are not going through a reassessment have been temporarily allocated to that particular area to help in the reassessment. In this particular case, we're talking about a province-wide reassessment, we're talking about every office doing the reassessment, and therefore there isn't the possibility to redistribute the staff since all staff are involved.
The workload has tripled in the province of Ontario since the Ontario government took over the function back in 1970. I was part of an assessment office at that time, and the fact is that we have risen from looking at approximately 1,200 properties to where each individual member of staff would be responsible now for 3,800 properties. Bill 106 now demands an even greater workload by asking us to assess all properties in the time period allotted.
No matter how you look at it, Bill 106 demands that the largest reassessment project ever imagined in North America be completed within approximately a year to 18 months' time. For the assessment division, this to us seems like climbing into a rusty 15-year-old car and trying to drive in the Molson Indy.
Faced with this unrealistic timetable, the division has taken some unprecedented steps, steps which have greatly concerned the existing staff in the assessment division.
The first step was to hire approximately 500 temporary, short-term staff on contract. These staff are not trained property assessors. The working-level Ontario property assessor is normally a CAAT graduate in assessment administration with five years' related experience. Most property assessors are university graduates with those same five years, and their training is in related courses such as economics, law and real estate valuation. These contract staff are doing tasks that are traditionally done by assessors, in some cases with very little training and very little supervision. As a result, some assessors have been told to ignore standard quality control measures already, and we expect many more standards will be flaunted before the deadline nears.
The second step of contracting out is the fact that the municipal enumeration project has also been contracted out. This is done every three years, and this year it will be done not by the normal staff but by a consortium of outside contractors, including Amex Corp. The cost has not been released. Part of our concern in this regard is the fact that to overcome the public's understandable reluctance to provide multinational corporations with personal data, the ministry has decided to have the return addresses go to the ministry or appear to be going to the ministry when in fact they're going to these multinational companies. We feel that this is clearly misleading them and we are very concerned that this is the case.
The third and final thing we were concerned about from a contracting point is the fact that they have recently put out tenders for companies to be invited to do some of the work that normally is done by the property assessment division. These contract companies have put in bids and are in the process now of hiring staff and preparing to do the reassessment work. These individuals who are being hired -- there is very limited control. The assessment division and, therefore, the ministry have no control over who these private companies hire. We are very concerned that even in the government document for the RFP there was an indication that they would only be allotted one day's training to train the individuals, who then in turn would train the staff who would go out to do the inspections of the properties.
Since occasional temporary workers have never been used as assessors, the ministry is counting on the public assuming that the data collector at the door with the assessment division identification has been hired, vetted and trained by the Ontario government. Like the false return address for the enumeration notice, the public will not be told that these inspectors work for private interests.
Many assessors predict that the ministry audit will be a whitewash, because a failed audit will force the ministry to admit they took a wrong road. There can be no turning back with this timetable.
Mr Presley: So the taxpayer can expect the worst quality of any reassessment in Ontario's history. Will it be done cheaply, at least? The answer is no. Rushing the job means the hiring of temporary, unqualified staff, the contracting out of the municipal enumeration task, and fattening the wallets of many businessmen. The residential reinspections, the simple ones discussed above, will cost the taxpayer about $30 each, according to our information. The amount will increase if the task is more complicated or if the properties are spread out. Of this $30, the worker will receive about $12 per house. The contractor will make a profit of $18 every time a worker inspects a house.
The number of properties reinspected in a day will vary, depending on many factors -- we say that right out; our years of experience have told us that -- but assessors in a residential neighbourhood can often do 20 simple residential inspections door-to-door. At $30 each, the contractor will bill the taxpayers $600 per workday. Qualified property assessors are paid between $123 and $194 per day, plus benefits. The temporary workers now employed by the assessment office the contract work is employed within are paid $12 per hour that they work for the ministry.
The other big part of our presentation is, who will administer Bill 106? There was one sentence referring to this in the staff presentation you heard this afternoon. The Crombie panel, which spent most of its first year examining the Ontario assessment system, said the following about the delivery of assessment:
"The subpanel strongly feels that the transfer of assessment delivery should occur when the revised assessment system has stabilized. An organizational change of this magnitude while the update is under way could jeopardize the accuracy and quality of the assessments and undermine the integrity of the process."
The assessment staff of Ontario know that Crombie was right, but the minister chose to ignore this advice. We think you should correct this mistake.
In mid-January the Minister of Finance announced that the Ontario property assessment program would be removed from his ministry by the end of the year. His announcement could not give much detail because the government admitted they did not have a plan. You all have this information before you. The assistant deputy minister of assessment said in a January 16, 1997 memo to us: "Today there are no answers....They will be answered over the next few months through consultation with the municipal sector."
Two months later, assessment's own newsletter, the Grapevine, advised employees who wonder about their jobs that "over 150 written questions have been received from divisional staff about the transfer of the division to the municipal sector....answers are going to be provided as soon as possible." A month later, today, we heard one sentence in the presentation that talked about where we and our colleagues are going to work.
What can be said about an employer who gives its employees the biggest challenge of their working lives and at the same time throws them into a black hole? The workers charged with this task are watching while their managers contract out work to unknown temporary help. But the employer goes further by giving the workers unofficial notice of the end of their employment with the provincial government. The job stress we're undergoing is multiplied many times by the stress of not knowing what to prepare for.
If the government has a plan, why do they not share it with their workers? It was not long ago that employees were assured that we were the most important resource for the government, yet we are now treated like cattle. We are left hanging for months and then told that our union will not even be at the table to discuss our future. We are uncertain about our pensions, our paycheques, and we're wondering if we should start looking for new occupations, and I have. If we ask questions or talk about the issues among ourselves, we are reprimanded and told, "There is a job to do." I've been reprimanded for talking about it.
The Minister of Finance and the government owe an apology to all of the workers in the assessment division. Yes, we chose careers in the civil service, but most of us chose that path when we gave the public the best service possible, and in turn we were treated with honour and some respect. Not many employees in the assessment division would feel that way today.
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The 1998 reassessment will suffer for this low morale of the workers. It will suffer for the contracting out of our work. It will suffer because it has been shoehorned into the political timetable of this government.
Bill 106 should be amended to give time to return a high quality assessment role based on actual value. Our municipalities and taxpayers are expecting the government to make sound decisions that will ensure our property tax system is trustworthy. It will not help the business or political climate of Ontario if the assessment system is in a shambles in 1998.
Just on a personal note, my grandfather was the assessment commissioner for Sudbury after the Second World War, and I'm named for him. Assessment is more than just a job to me. This is important, and I've devoted my working life to it, and many, many people have in the assessment division. Thank you.
The Chair: That leaves us about two minutes per caucus. We could start with the Liberal caucus.
Mr Phillips: I appreciate your putting the human side on this. I can imagine how stressful it is for your members. Can you help us on what the importance is for getting this thing done in the calendar year 1998 versus calendar year 1999, from your experience?
Mr Presley: That's not assessment related. There's no reason, in assessment terms, for doing it this year.
Mr Phillips: When we've got experts like you here, if you don't mind me asking a question on the bill as well -- I appreciate that your brief is on your members and we've several times raised it in the House, as you know. I think, by the way, you point out correctly what the Who Does What panel recommended. That was handpicked by Premier Harris; it wasn't some other group that selected those people. They recommended strongly that assessment continue to be a provincial responsibility until -- I forget the term they used --
Mr Presley: Stabilization.
Mr Phillips: -- the system is stabilized, and clearly it won't be stabilized. Maybe on that point, what's your sense of what will happen? It looks to me like the government is absolutely planning to dump this in the laps of municipalities. What do you think will be the outcome of that come January 1?
Mr Faulknor: If in fact this proceeds as to be expected, there are various suggestions as to what going to the municipalities could mean in terms of whether we actually physically are turned over to the municipalities, or whether we become an agency operated by the municipalities, or whether we become a schedule 2 agency operated by the government, or even a private agency that sells its product to the municipalities. That is very much unclear.
In the end, my guess is we're going to be dealing with less staff. One of the advantages to the idea of at least some sort of municipally run agency, if that is the course they choose, would be at least we'd maintain some sort of uniformity. The concept back in 1969 when the decision was to take over assessment offices was to bring about some sort of uniformity across the province. In fact, we seem to be turning in the opposite direction if in the end we go back directly to the municipalities, because then it becomes each municipality doing their own thing and we'll lose that uniformity that we have achieved.
Mr Pouliot: Thank you kindly. A very moving presentation indeed. It takes courage, under the present climate, to come out with phraseology such as "treated like cattle." Many of your friends, colleagues are being put on the human junk pile to benefit the pockets of a few who can very well defend themselves.
To do this inside the context of the civil service takes double courage and should serve as a warning. What I find ironic is, on the eve of 3.8 million, approximately, units to be reassessed; on the same eve of the most important and most massive reassessment, as you've mentioned, in North America; at a time where you would need more -- not the same, certainly not less; at a time where you would need the expertise at least to the same level and the opportunity to train others, the very opposite is happening.
It is frightening indeed, because once you embark on this road, there's no getting off it. The consequences are tedious. It will take time to rectify, so it has to be done right because it is done for some time and it serves as the basis for other assessment and reassessment, not a rush job which will be appealed at every opportunity.
You've mentioned, in your opening, market value. There's little difference -- when we say "market value," "current value," "actual value," we're talking about the same thing. I see you smile. Will you please extrapolate?
Mr Faulknor: A rose by any other name.
Mr Pouliot: So you're the expert in the field. How long have you been doing this, serving the public?
Mr Faulknor: Thirty years.
Mr Pouliot: And you, sir?
Mr Presley: Twenty-two.
Mr Pouliot: Twenty-two and 30; that's 52 years.
The Chair: Mr Pouliot, I think we've used your time. Mr Hudak?
Mr Pouliot: Tim Hudak thinks there's a huge difference, but he's an overnighter. He's just been around the block for less than two years.
The Chair: We envy his youth, if nothing else.
Mr Hudak: Thank you for your presentation. I appreciate your concerns, especially around the labour issues. Like Mr Phillips, I want to make use of your expertise in the field, if I may. The finance minister earlier today spoke about the 100,000 or so appeals pending in the Toronto area, and I know in the Niagara region, where I come from, it's something like 30,000 appeals, roughly. I certainly get a lot of calls to my office from constituents concerned about when their appeal will be heard, representing some substantial tax differences.
My question to you: Is the process envisioned in this bill, the single level of appeal, and also making the system of taxation more transparent -- do you think we'll see an end to these backlogs of 100,000 or so?
Mr Presley: That's directly related to the quality of the assessments that we return. In BC, which is used as the rule of thumb, they have a very low appeal system, but on the other hand they've grown into the system that they have now, and they do it regularly. It wasn't dropped on them and said, "Here, produce it in a year."
If you produce a good assessment system that's defendable -- and I've done that, even in places where people's assessments have jumped enormously. The Lake Bernard ratepayers' association up by Sundridge was where I returned the last waterfront, and it was during the height of the jump in recreational values. Our appeal rate was very low because I went to every property owner who appealed, went to the ratepayers' associations, explained what the basis was. We had a very low appeal rate, but I had a system that I had worked on and I believed it. I had visited almost every one of those properties myself, not somebody from a company I didn't know.
When we have a quality system, our appeal rate will be very low. There's no argument from us that the assessment system in Toronto and much of Ontario is terrible.
The Chair: Thank you, gentlemen, for presenting to us today. We appreciate your time.
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CANADIAN PROPERTY TAX ASSOCIATION
The Chair: We now welcome the Canadian Property Tax Association, Mr David Fleet. It's always nice to welcome back a previous member of the House, Mr Fleet.
Mr David Fleet: Thank you very much. I'm joined by two other representatives of the Canadian Property Tax Association. Sitting to my immediate right, the middle of the three of us that you're looking at, is Mr Barry Remington. He is the immediate past president of the Canadian Property Tax Association, serving in a national capacity. Our current president is based in Edmonton, and we thought it appropriate to have a representative of the national body. He is also the manager of property taxes for the Consumers' Gas Co Ltd.
Farther over to my right is Mr Peter Cobon. He is currently the secretary of the Ontario chapter of the Canadian Property Tax Association. He is also the senior manager, real estate taxation, for the Royal Bank of Canada.
I am currently the chair of the Ontario chapter of the CPTA and, in addition to that, am a lawyer in private practice with the firm of Poole Milligan. We represent property taxpayers; we do not act on behalf of assessors.
There has been a brief provided to you through the clerk. I do not propose at this point to read through it all and trust that you will be able to look to that for the detail. But we thought it appropriate to provide you with a synopsis of the main points outlined in the brief.
Perhaps the first and most critical element is that the CPTA is composed of a large number of companies and individuals. It's an organization that has been around for over 30 years now and has been very active. It is non-profit, it is non-partisan and it puts forward very strongly on behalf of a very wide range of taxpayers, particularly in the commercial-industrial and multiresidential classes, a message that reform of property assessment and taxation is needed and strongly supported. To the extent that this bill moves that agenda forward, it is supported.
The purpose of reform must be to achieve the fair and equitable distribution of the property tax burden. Sometimes in the heat of the political forum, that purpose gets lost. We want to emphasize it's the distribution, it's a zero-sum game in some respects, and the fair and equitable distribution is the key. We urge that this reform be achieved by applying objective and non-partisan criteria, and we refer you expressly to the list of criteria set out on page 4 of the brief. These are policies or principles with respect to both assessment and taxation. We distinguish to some degree assessment concepts from taxation concepts, but they're obviously linked. These criteria have been established by the CPTA for many years, and we would urge you to measure the provisions in the bill against these criteria.
One of the concerns we have about Bill 106 is that third reading ought not to be proceeded with until there has been a greater opportunity for public consultation. Quite simply, there are a lot of significant provisions in this bill. Much of it is very technical in nature. There was not a large degree of consultation within the assessment community before the bill itself came out. We appreciate the opportunities that we have had with senior staff of the Ministry of Finance and the Ministry of Municipal Affairs and Housing. They have been very helpful, and we've had some sessions with them.
Having said that, there is much not yet come forward, partly because we are advised that there will be another round of legislation and partly because of regulations. Frankly, until you can see the whole group of things, it's difficult to comment on many parts. In fact, rather apropos to that, I was provided today with a draft regulation. It doesn't appear to be finalized, but it deals with the classification of properties. I'm very appreciative that we see it today, but I can't begin to comment on it. I haven't, literally, had time to read through it yet and consider what's there, nor have we had a chance to consult with our own members on it.
There is a need to have that kind of information out. In some respects the classifications are the guts of this reassessment. Quite clearly, there's a need for more communication on that type of issue. We're not proposing that the bill itself or the principle of the bill be stopped, merely that there be time to get the additional information available.
The CPTA also urges some further consideration to the property classes. We would suggest that the criteria to determine those property classes ought to be contained within the bill. We've got a draft regulation. Why can't that become an amendment in the bill, assuming there's adequate consultation?
Second, it should be clarified that those property classes are defined to be only on a province-wide basis. We have been told that may be the intention. We're not so sure that that's what the legislation at the end of the day would permit. If they're going to be defined, the classes at least ought to be defined province-wide.
There are some real questions about whether you should have a class-based system at all. Query why you should have a higher tax burden because your property is labelled "industrial" as opposed to labelled "commercial" when both are being used for a profit-making purpose. If they're of equal value, why wouldn't they have an equal tax burden?
There are some other questions about the relationship or the range of tax burden between commercial-industrial properties and residential. We would urge that the property classes and the concept of tax bands be amended. The purpose of this reform, as we understand it, is to remove inequities. There is no guarantee in this bill -- this may be the greatest single disappointment with the bill -- that over time the inequity between the commercial-industrial and even the multiresidential classes vis-à-vis the starting point, which is the residential class, will ever get corrected.
Even when you establish tax bands, the limits provincially that you say ought to be maintained, we understand this legislation to mean, as drafted currently, that if you're outside the band, you'll never necessarily get it corrected. It's totally at municipal discretion. Well, frankly, if the municipal discretion was going to work, we probably wouldn't all be here. That causes the problem; that's not the solution.
There are also significant problems for commercial-industrial properties with the removal, if it goes ahead, of the educational portion of realty taxes only for residential properties. It appears to leave the commercial and industrial property owners and occupants open to being gouged. There's no clear mechanism even for how this is going to go forward, whether the tax rate is going to be determined provincially, regionally or municipally for that portion.
There are additional problems with how the tax rates will mesh with the phase-in provisions. Frankly, the municipal phase-in provisions are unworkable in certain respects. I draw to your particular attention the proposed section 372(3), which appears to take out of the phase-in the impact of the educational portion of taxes. Frankly, nobody out in the real world does it that way. They're going to look at their tax burden in 1997, their tax burden in 1998; they aren't going to do a separate calculation for the educational portion. We suggest that that part of the proposal is just unworkable. It will be a nightmare for everybody, including municipalities.
We urge that there be a requirement that where there are successful assessment appeals, interest be paid to those taxpayers at a reasonable, provincially set rate. For the most part right now, if you've been overassessed and you are successful on an appeal, most municipalities do not pay interest, and those that do tend to pay at a very low rate. That doesn't strike us as very fair, and we doubt very much if you would think it fair if it was your tax money you had overpaid.
There are other problems in the bill. Time doesn't permit us to get into all the technical aspects, but the assessment appeal provisions, the impact of vacancies on commercial and industrial properties and other transitional matters should be revisited and clarified.
Lastly, there has been much discussion about a couple of things; one is a two-tier -- it's not in the bill, I might add -- tax rate for commercial-industrial properties. That would be completely inequitable. It just won't work. It's not fair. We hope that doesn't see the light of day.
The second thing is that if there's going to be a new assessing authority, we would strongly urge the government to stop just consulting in that area with municipalities and take into account all of the stakeholders. It's our strong view that taxpayers should be consulted about how that authority might be structured and how it should operate, and that authority ought not to be a captive of the tax collector, which is the municipalities. It's certainly an area where we think there's room for positive creativity. We don't think the assessors should be biased in favour of any one side. That's the whole point: It's supposed to be fair and equitable. We would urge that some reconsideration be given in that regard.
I understand that Mr Remington will be making a few comments now.
Mr Barry Remington: Yes, if I may, David. Thanks. I'd just like to make a couple of quick general comments that tie into David's comments and the concerns that have been addressed here.
If this government is to improve and promote fairness in its new system of property assessment and taxation, then it should recognize the necessity of creating a level playing field in order for commerce and industry to be cost-effective in the global marketplace. What I'm saying is that the taxation policy itself should have no bearing or influence on the pricetag when customers make their choice.
As well, if businesses are to retain and expand investment and employment here in Ontario, the principle of fairness should be to restore the balance and stability between the different classes and tax rates rather than creating a tax environment which is totally unpredictable for the 1998 taxation year and beyond. In fact this piece of legislation, in my mind, could lead to certain sectors negotiating tax rates for each and every municipality throughout Ontario, which could create a lot of complexities down the road. Those are my comments. Thank you.
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The Chair: That leaves us with about six minutes, two minutes per caucus. We'll start with the NDP, Mr Pouliot, and that should include the answer.
Mr Pouliot: It's always a pleasure, David, thank you. I think your association is well served by having you as their president. I see in front of me "Canadian Property Tax Association," so I was trying to define the membership and who is Canadian, property, tax, association, and then I see, I got it, thank you: Royal Bank, Inco and Stelco, Westcoast Energy, so now it's better defined.
I see on your page 8 that you look at -- I like your comment -- "residential properties will have removed from them the burden of an educational portion of realty taxes," yet, "That burden will remain on commercial and industrial properties." You know that really what is being done here is a tradeoff and it's not revenue-neutral. In many cases people will end up paying more taxes when they look at the overall tax bill than they do now. Do you agree with that, that it might happen, it will happen in some cases?
Mr Fleet: Well, one of the difficulties is finding out exactly how it will impact the classes and, quite frankly, at different briefings I've had somewhat different answers to that very question. Ostensibly, if you're taking $6.2 million or billion, whatever the number was, off residential and you are loading it down on everything else, assuming that that's revenue-neutral -- and I take it the critics would say it's not -- but even if that's revenue-neutral, it strikes me that under that formula you're getting a disproportionate burden borne by commercial investment in a multiresidential property.
Mr Pouliot: So it's entirely possible that your general purpose will increase and you won't get the benefit of a decrease on the education side, and you couldn't care less. I mean, a buck's a buck, a tax is a tax whether it goes for the seniors at the seniors' home or for the little one going to school. It's a dollar coming out of your pocket, right? It's a dollar that stops you from creating yet more jobs.
Mr Fleet: At the end of the day there's no question the companies and outfits that we represent are interested in the tax burden that they're going to bear -- no doubt about it.
Mr Spina: David, good to see you again. You've been in this game a long time. You've seen a lot of discussion, a lot of analysis has gone into this thing, and yet you feel that it needs more consultation. I'm a little surprised at that, but I want to really zero in on the other issue that both of you alluded to, and that was the basic mistrust of the municipal governments that I'm reading into your comments.
You used an expression like, this is an opportunity for them to gouge businesses; you're talking about the complexity that can arise as a result of having to negotiate tax rates with different municipalities. Frankly, I would view this as an opportunity as a businessperson, because if I'm shopping around for a location or a potential site, then this is an opportunity for the municipalities to compete for business. I don't have a fundamental problem with that.
Mr Fleet: I didn't use the word "mistrust." I'm not sure I'd be comfortable with that word.
Mr Spina: No you didn't use the word "mistrust." I did. You used that they had the opportunity to gouge business.
Mr Fleet: I guess you get into the problem of what's sometimes called bonusing in a planning context, and the difficulty that has been faced is historically with the reassessments in regions that, given an opportunity to shelter some group of taxpayers, the commercial-industrial classes aren't the group that gets sheltered, they're the ones that bear the penalty and, in a municipal voting structure, the residential taxpayers are the ones who get sheltered, if anyone does.
Over the last 30 or 40 or 50 years the general tendency in most places in Ontario is that residential property values have risen more rapidly than commercial and industrial property values. Consequently the tax shifts with reassessment, if allowed to flow naturally, if I can put it that way, would be borne more by residential properties.
In order to stop that, municipalities, and to some extent the province from time to time, have interfered with what would otherwise occur with a natural reassessment. That's what we have today. That's the problem. When you get individual municipal discretion, overall the problem that seems to come up year after year, decade after decade is that commercial-industrial property class owners or occupants tend to lose out. They tend to get beaten out in that local political milieu.
What is sought is really quite simple: a fair and equitable system. It shouldn't matter whether you're on one side of the municipal boundary or another. If the property is of a given value, it should be assessed on an equitable basis and there shouldn't be a bias.
Mr Phillips: I appreciate the presentation. I share very much what I think the tone of the brief is, that we really don't know what this bill means, and I think that's deliberate. I don't think they want clarity, because they know somebody is going to be mad. So it's deliberately very vague and we're being asked, in my opinion, "Just trust us and we'll do it."
You point out the two-tiered system, because the government wants to be able to say to small business, "Don't worry, we'll have it two-tiered and we'll make sure you get a low rate," and then to the board of trade they'll say, "Don't worry, we're having some equity here." The education one, as you rightly point out, if we don't know that, we'll really have difficulty dealing with it. Will there be a uniform mill rate for education property tax? No idea. That's how it works around here. We lost, they won and they govern.
The one specific question I've got for you is about your concern on page 7 about the difference between current use and current value. Can you help me a little bit with what the implications of that might be? My impression was the same, that the Crombie panel recommended one thing and this bill seems to be doing something different.
Mr Fleet: There's a definition in the bill about "current value" which is essentially a market value definition. There's no complaint about that. There is a provision that allows for the Minister of Finance to pass regulations that involve what "current use" means in the context of the definition of "current value." It's simply difficult to comment on the regulations. We haven't seen them yet so we don't know quite what's contemplated there.
Clearly, the CPTA supports the idea of reform. The question is making sure as it goes through, and I would hope this would apply to any bill, that it's as clear as possible, that people understand what it's going to mean both from the government side and, if you like, the user's side, the people who will be impacted. That's the principle behind the submissions today. I think Mr Remington also has another comment.
Mr Remington: I'll elaborate on that, the "current use," which is a special regulation that's been introduced into this legislation. I think the interpretation of what constitutes current use might vary among municipalities and that more specific regulatory clarity is warranted to ensure consistent and fair application of the current-use criteria.
Mr Phillips, I'll just add to your earlier comments respecting the revenue-neutral thing of this whole piece of legislation too as a concern. We as corporate tax people are trying to work with our budgets down the road. At this stage we are unable to make any prediction of what fallout this piece of this legislation will have at the end of it all. I think even the studies that have been done by Metro and all municipalities throughout Ontario have indicated that this isn't a revenue-neutral piece of legislation. I think it has been proven by all municipalities who have done studies that they are the losers in all this.
The Chair: Thank you very much, gentlemen, for your presentation to the committee today. We appreciate your coming today.
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REGIONAL MUNICIPALITY OF PEEL
The Chair: We now welcome the chair of the Regional Municipality of Peel, Mr Emil Kolb. Welcome to the committee, Mr Kolb. Would you introduce your assistants, assuming they're assistants.
Mr Emil Kolb: We can't get along without technical people. You know that. Thank you very much, Mr Chairman. The person sitting to my right is the CAO, Michael Garrett, from the regional municipality of Peel. Also we have the commissioner of finance with us, Joe Pennachetti, and another staff person, Todd MacDonald, who actually has done over the years a lot of work in trying to understand what tax reform and property tax and tax assessment mean.
Let me first just thank you very much for giving us the opportunity to come here this afternoon and give you some of our comments on Bill 106. I know, being in politics for many years, that there's been a lot of money spent over the years on commissions and consultants over this. There was the Smith report, the Blair report and the Robart report on it, so we know in Peel how much political will it takes when you take on a project like this. We're really pleased that this government has again had the willingness to address this political issue. It's been around all the time that I've been in politics and it'll be around a lot more if we don't get some answers to it.
We'd like to spend most of the time just making a few comments on it and we're here to answer any questions you might have. I'm not going to say an awful lot. I'd like to turn it over to Mike, who has had more experience within the bill and within the assessment stuff, and I'd like to help staff answer any questions you might have afterwards.
Mr Michael Garrett: We're here today because we support strongly the direction the government has taken with Bill 106. Our comments on the bill have focused at a high level today. Given the time we have, we have concentrated on three areas. The first is assessment reform and within-class fairness, within the same class of property. The second issue we want to talk about a little bit is between-class fairness, the fairness of the assessment system between classes of property and the issue of variable mill rates. Last is the apportionment of upper-tier costs and how the proposed legislation will address the problem that we've had in a significant way in the region of Peel.
You probably can't read the next slide, but there is a handout and I believe you have that. It has been handed out and it's in your package. It's an attachment to the brief we've presented.
I was fortunate enough to co-chair a committee in the greater Toronto area a couple of years ago that looked at the issue of assessment and the cost of services across the GTA. One of the pieces of work that was done with the collaboration of a lot of people, provincial and municipal staff, was the difference in the assessment of property of equal market value across the GTA.
I only put this slide up, not because I expect you to look at all the data that are here, but if you draw your eyes down to the region of Peel and its two cities and one town and go across to the right-hand side or the industrial class of property and just look at the difference in the taxes that are paid for a property that is worth the same amount -- the same industrial property, the same value, say, between Mississauga and Brampton -- the difference in taxation for that same property is in the hundreds of dollars, a significant difference, and really is a function of an assessment system that has been broken and flawed and needs some correction. We want to deal with that, we need a solution to that, the solution is in Bill 106 and we support that.
The next slide deals with the solutions the government has proposed within the legislation. First, coming up with a common base year makes a lot of sense. In the region of Peel we have years of assessment that range from 1969 through 1985, and clearly it makes for distortions in the assessment system. It's crucial when dealing with upper-tier levies of one sort or another, whether for education or for upper-tier services, to have a common base year.
We believe that the proposal for multi-year averaging makes sense. We have seen fluctuations in assessment when market values go up and down, depending on some circumstances, and to have some system whereby the assessment is averaged on a rolling basis to avoid those fluctuations makes a lot of sense and adds stability to the assessment system. The three-year proposal that is in the legislation makes some sense from our perspective as well.
In addition to that, the legislation proposes some allowance for phasing, eight years for phase-in. That's a judgement call, of course, but at the very least the legislation proposes that if there is a phasing plan, it can't be rear-end loaded. The phasing must be at least equal or loaded towards the front end so there isn't a disproportionate hit on taxpayers at the end of the eight-year period.
That makes some sense to us too. So one could, if there is a significant impact with a class of property, divide that impact by eight and have eight equal increments. It wouldn't make any sense at all to have zero increments for seven years and hit them all with the impact in the last year, so that piece of the legislation makes sense as well. We understand, of course, from all of this that none of this changes the tax revenue that's generated. Rather, it redistributes it within those classes of property.
The next slide deals with the second problem. We call it "between-class fairness." By "classes" we mean industrial or commercial or residential or multi-res. That's one of the issues that has been raised and discussed in detail in Toronto, and I guess this quote from the Golden Goose report prepared by the Metropolitan board of trade is the one that --
Interjection.
Mr Garrett: The Golden Goose report, yes. I guess that's in the other chambers.
This deals with the issue of taxing one class of property unfairly relative to another tax.
The next slide after this, from the same report that was done by staff a couple of years ago, really illustrates the magnitude of the problem. We're not immune to the problem in Peel, although we don't have the kind of problem that Toronto has. You can look at the issue in Toronto, but in Peel, again, if you look at the industrial column -- Todd, you might just draw your pencil down to that -- the difference between the property class factors, the 155 and the 133 between Brampton and Caledon, is significant.
That's part of the problem with the derivation of the assessment for industrial land that causes a distortion between classes. We can't explain why they're different in the current system. It makes no sense at all. The current proposal will change that and everybody will be brought on to a level playing field.
The issue of between-class assessment: The factors that exist as a relationship to the single-family residential class vary widely from one municipality to another. Even within our municipality you can see the difference in those ratios between residential and multiresidential, for example between Brampton, Caledon and Mississauga. There are significant differences, very difficult to explain, and they end up being translated into the assessment numbers that are used to generate taxes.
The solution that's been proposed: Bill 106 proposes a variable tax rate solution to deal with that. We also believe that makes sense. It limits the notion of bonusing so that one municipality that may have different circumstances from another can't give untoward advantage to some industrial land or commercial land, that within an upper tier those levels are the same. In fact, between municipalities across Ontario the bands that are established must be similar so that there can't be significant changes in the way property is assessed.
The creation of those tax bands, which of course we haven't seen yet, will be all-important. If they're infinitely wide, they don't solve the problem, so there has to be some constraint on the width of those bands. This will at least prevent the unfair worsening of tax distribution as it is now.
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What has been explained so far is that municipalities can stay where they are, and if they're not within the band, they can't aggravate the situation; they must move towards the band in their tax rate. We're going one step further and suggesting that the government might want to consider compelling municipalities to at least gradually move towards those bands that will be established so that at some point all municipalities are operating off the same playing field, moving the tax ratios within the bands that are established. Otherwise, the anomalies or the inequities, the unfairness that might exist in one municipality, could continue. There should be at least some progress towards achieving some equity among municipalities.
The final point deals with the fair sharing of upper-tier costs, whether they be education or regional costs or, I suppose, county costs. The current proxy apportionment formulas are very complex and difficult to understand and are seriously flawed. Not one of them is right. We have weighted and equivalent systems; we have equalization systems. In the region of Peel it's created quite a problem politically because there is disagreement about which system, which apportionment formula, is best for which municipality, which lower-tier municipality within the region.
The Bill 106 apportionment proposal is ideal. It means that assessment is based on a common year, all the market value is based at the same time, and so there should be no argument about the distribution of upper-tier costs. So the way that is being proposed to be handled in the legislation is very positive and there can be no argument about how the costs for education or any upper-tier costs are distributed among the lower-tier municipalities. It makes a lot of sense to have a common base year, and that will correct a problem that we've had in our municipality for some time.
In conclusion, we strongly support Bill 106. We believe that on day one it creates some within-class fairness so that all of the single-family houses or all the industrial land of similar market value will be assessed the same amount in the region of Peel. That's a fair system. We support that. It ensures that the tools are in place for municipalities to make decisions on the between-class fairness issue, so if a municipality wants to put more weight on one class of property or another as a result of its revenue decision-making process, they've got to live with the bed they make in that regard. The tools are in here for municipalities to make those decisions, and we support that. It ensures, as I said, fair cost-sharing in two-tier municipalities where we've had a problem. Technically, the method for implementing this plan seems to be reasonable, this bill, and we're in general support.
The Chair: Thank you very much. We move to a three-minute round of questions.
Mr Spina: Thank you, gentlemen, for the presentation. I know this has been a question that has surfaced in your area through the mayor of Caledon, which was your former position. Her concern was the loss of revenue from farm land. As a result of these changes, I'm just wondering how you think that can be addressed by some of these changes.
Mr Kolb: My understanding was that would be addressed in the disentanglement and that there would still be a portion or some latitude in there within that amount to be picked up. I think what's been very difficult, Joe, has been that it's very hard for a municipality to put those numbers together which might represent what the number might be in their particular area.
Again, it comes down to maybe a little bit larger issue, and you can take that into any municipality: What is the highest and best use for the land? So you can have designations on land, and of course it is being tried, as you know, in our region by the bigger city to the south, charging those developers an industrial-based tax on industrial land that has not yet been built on, and it basically leaves you with the same kind of situation in hand. So I think some of the answers to it will quite honestly come more when we have better answers to the disentanglement program, which I believe is a fairly large number in the province being picked up.
Mr Phillips: I'm sorry we don't have more time, because I appreciate your expertise. You don't mention the business occupancy tax, and I wonder if you've considered how you're planning to handle that, the elimination of the business occupancy tax. Where is that revenue likely to be made up and what, if any, impact will that have?
Mr Garrett: The taxing authority is the local municipalities, the lower-tier municipalities, so you might be better to address your questions to those. Our presumption, however, is that that will be replaced by some sort of realty tax on the industrial-commercial sector and that it will be made up in some way. What the implications of that are, we can't answer. We haven't analysed that.
Mr Phillips: You've given us some really good information here on the education portion. I look at your table and you can see that in the Metropolitan area on the commercial sector it's very high; well over 50% of the tax is for education. The province, as we know, plans to continue to send a bill to municipalities for education for the commercial-industrial sector.
Am I to take from your comments that your recommendation would be that over time the province, on the property tax, should be looking to lower the amount of revenue they raise where they are outside the bands? Your suggestion is that the legislation should compel municipalities to bring the tax rate relationship within the bands. Am I taking from your recommendation that we should be urging the province in Metro Toronto to reduce the amount of money they raise from the commercial-industrial tax base for education?
Mr Garrett: If I can, our intention is to level the playing field. The burden of taxation for education right now, within Metropolitan Toronto or within any municipality, depends on the distortion in the second table that I showed you, those class factors. So yes, the shift in educational costs, if that playing field was levelled, would migrate at some pace towards the residential sector from the industrial-commercial sector if municipalities were compelled to bring their tax rates within those bands.
What we're suggesting is that that's the right thing to do. For example, in the region of Peel the taxes for education are about 67% of the property tax bill. In Metropolitan Toronto you'd know better than I would, but they are probably 51% or 52%, significantly lower. So the residential sector is picking up a more significant portion of the education cost than is the case within Metropolitan Toronto, for example.
The issue that is before us really is, is that right, or over time, and it may be over an extended period of time, should not the raising of that education tax be on the level playing field, comparing Toronto to Barrie, to the county of Dufferin, for that matter, and should there be some levelling of the playing field in that regard? So I guess that's what we're saying. We realize it's revenue-neutral, or supposed to be, from that perspective, but it would involve a shift. I guess it comes to a philosophical point, that we should understand the costs and who should be paying for them: User pay as far as we can.
Mr Pouliot: Obviously you're right on top of this issue, and for yourselves and those you represent this is a welcome and long-awaited chart. You make an excellent case in terms of pointing out to us what the disparities are and what could be under a "fair tax system" a departure to say the least.
I note that in your presentation you said the bottom line or the revenue side within context does not change, and by your answer you've factored in that there will be, by virtue of the occupancy tax, a break for the industrial. They will pay less. If you're a large tower, you will pay less, if you're a large industrial, you will pay less, and you will pay less for hotels, for instance, apartment owners. But you seem quite confident that you will have flexibility or imagination to pick up the slack. At least you will have the tools to achieve uniformity in terms of assessment, and that's your feeling.
I've been following these dossiers as they develop and it's fairly massive. That's the one side of the equation, and I'm happy that Peel is pleased with 106, but there's a lot of webbing and meshing. There's $1 billion coming out of education here. It gives them the tools, and that's okay for them; it's not my philosophy but that's their approach, no mistake about that. There's also close to $2 billion coming out of the transfer or change in responsibilities that you have, and I know that you're very much -- if you're not aware of it, as the other shoe falls, you're just about to find the costing of all these things. You'll get an instant-coffee lesson in the demographics and you perhaps will be very surprised how many people are my age or older and they're coming to Peel and they're saying, "You're now the person I deal with."
Make no mistake: There's $2 billion that people like Peel and its youth are going to have to pay and there's $1 billion on the education side. So I hope that on the revenue side you're able to recuperate whatever you've lost and whatever needs to be readjusted, because they won't send you a cheque. They don't have the capacity to do that.
Mr Garrett: It's not a matter of recuperating. I would hope the swap that's being proposed is revenue-neutral when we work it out, and if it isn't, there are going to be some adjustments made or should be some adjustments made to hopefully make it that way. But notwithstanding that, the idea is to have a fair system of assessment so that equal properties are being taxed the same way.
Mr Kolb: If I may just add another point to it, in Peel, for example, the education subsidy that we were receiving from the province was only 10% to 11%. So if you compare that to what it might have been in some other areas, where they might be receiving 60%, 70% and 80% on education, it's a fair difference. It is true that the gap you may have to work with will be on the cost of your education. If you've been paying a high residential education cost in Peel, then it's true what you say, there might be some flexibility in that, but we will not know those until we have an opportunity to see the disentanglement numbers, the final formula.
Mr Pouliot: Thank you. I'll put this into perspective. I've learned a lot more about Peel from what you're telling me. Thank you very much.
The Chair: Thank you, Mr Kolb, for joining us today and for your presentation, and your associate. Thank you very much, Michael.
There being no further business to bring before the committee, we stand adjourned until 10 o'clock tomorrow morning.
The committee adjourned at 1714.