FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
ASSOCIATION OF MUNICIPALITIES OF ONTARIO
CITY OF BRAMPTON METRUS DEVELOPMENT
CANADIAN INSTITUTE OF PUBLIC REAL ESTATE COMPANIES
NORTH ROSEDALE RATEPAYERS' ASSOCIATION
DEER PARK RATEPAYERS'
GROUP
SUMMERHILL RESIDENTS' ASSOCIATION
PAM MCCONNELL
DENISE REDWOOD
PAUL BARBER
CONTENTS
Wednesday 9 April 1997
Fair Municipal Finance Act, 1997, Bill 106, Mr Eves / Loi de 1997 sur le financement équitable des municipalités, Projet de loi 106, M. Eves
Ontario Chamber of Commerce
Mr Ian Cunningham
Association of Municipalities of Ontario
Mr Terry Mundell
Colt Consulting Services Ltd
Mr Howard Colt
City of Brampton; Metrus Development
Mr Peter Robertson
Mr Bob Hooshley
Beach Arts Centre
Ms Elaine Daviau
Retail Task Force
Mr Harold Chmara
Mr David Carefoot
Mr Tim Carter
Mr Dan Leckie
Canadian Institute of Public Real Estate Companies
Mr Ron Daniel
Mr David Stewart
Mr Tony Araujo
North Rosedale Ratepayers' Association
Mr Peter de Auer
Mr Paul Kellogg
Mr Peter Tabuns
Town of Oakville
Mr Kevin Flynn
Ms Michelle Séguin
Brampton Board of Trade
Mr Bob Malcolmson
Deer Park Ratepayers' Group; Summerhill Residents' Association
Ms Katherine Packer
Mr John Bossons
Ms Pam McConnell; Ms Denise Redwood; Mr Paul Barber
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)
Substitutions / Membres remplaçants:
Mr GaryFox (Prince Edward-Lennox-South Hastings /
Prince Edward-Lennox-Hastings-Sud PC)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 1000 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.
ONTARIO CHAMBER OF COMMERCE
The Chair (Mr Ted Chudleigh): We'll call the meeting to order. I thank the committee for being so prompt.
We have with us this morning to start the day the Ontario Chamber of Commerce, Mr Ian Cunningham. Mr Cunningham, welcome to the standing committee on finance and economic affairs. We look forward to your presentation and we'll fill any remaining time with questions.
Mr Ian Cunningham: Good morning, Mr Chairman, ladies and gentlemen. Thank you for the opportunity to present the views of the Ontario Chamber of Commerce. As members of the committee will know, the Ontario Chamber of Commerce is the leading voice of business in the province, representing more than 60,000 employers through some 176 affiliated community chambers of commerce and boards of trade. It's my understanding that a number of our local organizations will also be making presentations before your committee, and I think I saw on today's agenda that the Brampton Board of Trade will be appearing later this afternoon.
Our membership includes firms of all sizes: large, medium and small. They're located in virtually every corner of the province and they operate in virtually every sector. The Ontario chamber is a strong advocate of sound and sustainable fiscal policies and works to ensure that government understands the important role of the private sector in investment and job creation. We welcome the opportunity to appear before your committee and offer our input on the Fair Municipal Finance Act.
The Ontario chamber wishes to compliment the government for bringing forward a comprehensive plan to reform Ontario's current system of assessment and property tax. It has been clear for many years that the existing property tax assessment system is outdated and does not work. This is reflected in the fact that some property assessments have not been updated for more than 50 years and have led to many homeowners and businesses paying more property tax than they should. We believe the introduction of a common assessment base across the province will restore fairness to property taxation. Annual property reassessments will keep the system current and the legislative provision for three-year rolling averages will smooth out potential spikes in property assessment values.
There are several other specific areas that I'd like to comment on briefly today. In regard to the business occupancy tax, the Ontario Chamber of Commerce supports the elimination of the business occupancy tax. This tax is unfair, outdated and discriminatory. It's based on a set of arbitrary tax rates and in no way reflects any reality in Ontario's current economy. Businesses have called for the elimination of this arbitrary and obsolete tax and we are pleased that the government has listened and is prepared to take action.
We are hopeful that this change will help to level the playing field for businesses by rectifying the current situation of tax inequities between municipalities. We have seen in the past the migration of businesses to areas with more favourable tax structures. We should really be focusing our efforts to ensure that new businesses view Ontario as a whole as an attractive location to set up operations. By eliminating the business occupancy tax, arbitrary tax distortions will become a thing of the past. Small businesses in a municipality will pay the same amount of tax if their properties have the same value. By legislating annual assessment updates, businesses will be able to plan for the future with more certainty. This factor alone will help to boost business confidence and the ability to do business in Ontario.
Under this bill, municipalities will be given the ability to recover their share of business occupancy tax revenue by setting different tax rates and different property classes. We are supportive of this move, provided it takes place within the framework of guidelines to be established by the province. However, to ensure accountability, we will be urging our member chambers of commerce and boards of trade to be extremely vigilant in monitoring the activities of their local governments. We will also encourage them to forcefully advocate that the revenue shortfall created by the elimination of the business occupancy tax be made up through operating efficiencies.
The Ontario chamber supports the introduction of a simplified appeals process to deal with disputes over property assessment or classification. However, while the goal of this simplified process is early dispute resolution and a reduction in the backlog of cases, we are not convinced that this factor sufficiently addresses the issue of revenue shortfalls. In recent years we've seen dramatic increases in the number of successful appeals and this has eroded the municipal tax base. As a result, municipalities have been forced to increase tax rates to help pay for local services.
It's simply not fair that any taxpayer should have to pay more tax because municipal revenues have been diminished by thousands of unnecessary appeals created by an outdated assessment system. We know from experience that tax inequities make the economy less efficient. It is important that these property tax inequities, specifically for business, are eliminated. It is our view that a streamlined assessment appeals process, combined with the stabilization of the assessment tax base, are two of the keys to returning fairness to our system of property taxation.
The Ontario chamber supports the concept of a value-based assessment system where every property will be assessed based on current value. Property owners across Ontario deserve a fair, understandable and more open tax structure. Under the proposed system, municipalities will be able to reduce unfair differences in tax rates in a manageable way but will not be able to increase existing differentials in current tax burdens between property classes. The Ontario chamber supports this distinction and favours an overall reduction in taxes to stimulate new investment in the province.
The chamber supports the use of variable mill rates as an acceptable means of implementing many of the changes proposed in Bill 106. This will give local governments more options when deciding what tax rates to apply to each property class. Historically, the only way municipalities could reduce the property tax burden on business relative to residential properties was to fully equalize taxes. The proposed new system will make it easier for municipalities to make consistent improvements in steps that are acceptable to local taxpayers.
We are encouraged that smaller businesses such as neighbourhood shopping malls and retail stores will benefit from this plan, which will allow municipalities to set preferential tax rates on lower-valued commercial properties. We are confident that by careful management of their new responsibilities, municipalities will be able to provide a more supportive tax climate for all taxpayers, including community businesses. Indeed, municipalities can give any such tax reduction solely to business classes if that's the choice that best meets their local needs, and we are hopeful that this will be the case.
When considering the broad issue of property assessment, there are other specific anomalies that arise from time to time. One such case involves the manner in which railway or utility rights of way are assessed. The current methodology assesses these rights of way based on the value of abutting land. This has created considerable tax inequities and it must be changed.
The Ontario Chamber of Commerce has previously called upon the government to review the manner in which railway rights of way are treated for the purposes of property tax assessment. Our railways are a vital mode of transportation and are important movers of both people and goods. The government must ensure that they are dealt with fairly when being assessed in a manner that is consistent with other modes of transport.
In conclusion, the property tax crisis in the province has been in need of urgent attention for many years. The Ontario Chamber of Commerce wishes to acknowledge the fine work of the GTA Task Force and the Who Does What panel and we applaud the government for embracing many of their well-thought-out recommendations and proposals. We are hopeful that the proposed legislation will lead to the elimination of inequities in the amount of property taxes paid by businesses across the province. We must remember that property tax is the single largest tax for which businesses are responsible. Legislation such as Bill 106 can help to create an environment where businesses are able to thrive in their local communities, create jobs and compete effectively in the international marketplace.
The Ontario Chamber of Commerce will continue to ensure that the voice of business is well represented. After all, business is the engine which drives the economy of our province. For our part, we will continue to offer constructive input to ensure that the economic climate is good for business. In our view, Bill 106 will help to accomplish this goal.
The Chair: Thank you very much, Mr Cunningham. We have about 12 minutes left, four minutes per caucus. Mr Phillips, would you start us off, please.
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Mr Gerry Phillips (Scarborough-Agincourt): I appreciate the chamber's presentation. I can tell you, from our party's view, we frankly don't think we've got enough information to reach conclusions on the bill. I come from a business background and I used, as they say, due diligence and this is a contract that I wouldn't sign without a lot more information.
In any event, the thing we've heard from all the municipal people we've talked with is that the $1.6 billion on business occupancy tax that's currently raised is going to be reallocated back on to the commercial-industrial sector. That is the expectation, that's exactly what we expect from the bill, so you reallocate the $1.6 billion. Right now it's done on the basis of the old formula, the 75% etc. It now will be allocated on the basis of assessment, so a majority of businesses, a majority of the numbers, will see property tax increases averaging 10%. Other businesses, of course, will see tax decreases, and large businesses -- retail chains, financial institutions -- substantial decreases. That's the result of the bill. When that happens, it will be no surprise to anybody because the $1.6 billion, the municipalities are saying, "That's how we're going to get it." This contract will be signed on behalf of the people of Ontario by Mike Harris in a few weeks and that's what will happen.
I gather from the chamber's presentation today that you're in agreement with that. You're urging us to sign the contract on Bill 106. That's going to be the output of it, but the chamber supports that as a fairer method of raising the taxes than the existing BOT.
Mr Cunningham: It's our view that municipal councils are well equipped to use the tools that are provided to them under the proposed amendments and that in consultation with their local communities they will develop an appropriate regime for their community. We will of course urge our community chambers of commerce and boards of trade to play a role in that consultation.
It's my experience with local council that they are the most approachable level of government. They are the level of government that one can influence to the greatest degree. My own experience at the community level is that if a chamber of commerce takes a delegation of 150 people to a council meeting and is well prepared, that council will listen and will respond to the needs of the business community.
Mr Phillips: I appreciate that very much. I'm just saying they will be working with a law that says you take the business --
Mr Cunningham: That they can't do that. They can do exactly what you say, and it's our view that we're going to have to get more aggressive on the community front to ensure that does not happen. We're in the business of looking after the needs of our members, some 60,000 employers across the province, and we will mobilize our community chambers of commerce and boards of trade to ensure that taxes are not loaded back on to business at the community level.
Mr Phillips: We've been told that's what's going to happen, but you still are urging us to agree to the bill.
Mr Cunningham: These decisions ought to be made at the local level. The bill gives municipalities the tools to construct their own regime of tax treatment in a way that they think is appropriate for their community. We think community chambers of commerce can play a role in shaping that tax regime and ensuring that the taxes that are placed on business are at an appropriate level.
Mr Phillips: I guess I'm just saying to the chamber that my interpretation of the law is that the flexibility is gone, so I would hope the chamber doesn't say a year from now, because that's when the tax bills will come out, "How did this possibly happen? Why are small business taxes going up like this?" and your members ringing the phone off the hook. I'm just saying the councils' hands are tied once the bill is passed, other than saying, "We're going to raise less taxes," but already, as we may hear from AMO, they're faced with perhaps more expense, not less expense.
Mr Gilles Pouliot (Lake Nipigon): AMO's back must feel refreshed. They've been under intensive massage.
Mr Cunningham, welcome and good morning. You represent the Ontario Chamber of Commerce. Would I be right in assuming that most of your membership would be made up of small- and medium-sized business?
Mr Cunningham: I mentioned we have 60,000 employers. The majority would be probably less than 50 employees, but we also include companies like Royal Bank, General Motors, IBM.
Mr Pouliot: The Royal Bank and General Motors, by virtue of the elimination of the business occupancy tax, will benefit the most. They are the winners. Second in line are the large hotel and motel chains, and then third but certainly not last -- there are a few more winners -- are the large apartment residential units.
What happens under this proposal, as you've mentioned, is that the commercial responsibility towards education, the education levy, remains. There are only so many dollars that can be saved through efficiencies. You still have the responsibility of the general purpose of governments, so if you have a decrease from the top, the money has to be made up somewhere. There's no secret here. Then you go to your local decision-maker, the town council, and they will see one bank president and 500 Ms Joneses in the subsidized units. Which one do you wish?
You will have the responsibility for education taken from the residential taxes and you will have supposedly a trade-off. But this is not revenue-neutral, not a wash, because there will be some added responsibilities that are likely to cost more, so the difference will have to be made up some place. If there's a shortfall at the residential level, they will go to the commercial level, not so much the industrial but the commercial level, which is your membership. Unless we have all the ramifications, all the database, we really are not in the position to say yes or no.
I take with a grain of salt Mr Harris's saying -- I know he's well intended -- that councils should be able to implement a 10% residential decrease by the year 2000. I haven't met too many people in municipalities who believe that. I mean, it's not who does what, it's who pays for what, in the final analysis.
I would caution, with respect, that unless we've got the database, it will be difficult for all of us and for the government to say -- we're waiting for the other shoe to drop. I'd like your reaction, because you seem to be very committed. You're a believer in your cause and I admire that, but we don't wish you to be in a difficult position come six months down the line.
Mr Cunningham: We congratulate the government for having the courage to move ahead. Ideally, you would have perfect information, you would be able to see into the future and predict the future, but the world rarely allows you to have perfect information and predict the future with certainty. We know that something has to be done. This looks like an acceptable package. Action is needed, and in a very general way, this seems acceptable to us and to our members.
Mr Pouliot: You've also mentioned the appeals, and it gets fairly complex. Fully 3.8 million units are to be assessed and reassessed. It's the largest endeavour of its kind ever undertaken in North America. All this has to be in place by April 1998, a very short time. It's been contracted out and it will be done piecemeal, not always by professionals, because they will suffer from overload. In some cases, they will not be welcome to even enter a property. It is expected that 600,000 appeals will join the waiting list of some 300,000. It looks like it might be a heck of a mess.
Courage is one thing. They speak very highly of the First Brigade -- they were very courageous -- but they're all dead, Mr Cunningham. We feel that the government has not taken the time and they've put an awful lot on the plate. But revolutions are made of this nature, and we know the fate of those endeavours.
Mr Cunningham: That of course would be very embarrassing for the government, and there might be a positive outcome for you if that were the case.
Ms Isabel Bassett (St Andrew-St Patrick): Thanks, Mr Cunningham, for your presentation. You've gone over it in your previous response, but I want you to focus in for us specifically. First of all, do you believe a multi-tiered commercial tax, by which municipalities could tax smaller commercial properties at a lesser rate, would help to protect and stimulate the small business community in Ontario? Second, would you explain why this would help them?
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Mr Cunningham: My own experience with the current system is that when a reassessment was done, very successful small businesses have experienced huge property tax increases of 300% and 400%, increases that threaten their viability and threaten the sustainability of some very long-standing, very strong businesses. In areas that should be preserved, in commercial areas that in the view of a municipal council might need some special treatment because of their special character, it's not inappropriate that municipalities could identify certain areas for this kind of preferential treatment. Does that answer your question?
Ms Bassett: Yes, that's it exactly. You think it's a good idea and it would stimulate business, would help them.
Mr Cunningham: Yes.
Mr Jim Brown (Scarborough West): My question is a follow-up to Ms Bassett's. Small and medium-size enterprises are the job creators; 85% of all new jobs are generated by them. I'm wondering if we should have a special class for SMEs, not pushing it down to the municipal level, that we establish it to give favourable treatment to small and medium-size businesses as opposed to large. What do you think?
Mr Cunningham: There could be a rationale to support that. Clearly, SMEs are where the growth is. However, at some point a new business is going to have to deal with the realities of paying the regular rates. Maybe it's analogous to a commercial tenant who gets a stepped lease; sometimes, when the lease payments step up, they can't make those payments any more. There is good logic on both sides, but I wouldn't think it should be for an extended time. It's not really been considered, so this is right off the top, but --
Mr Jim Brown: One of the things it might mean is that the little guys don't pay for the breaks the banks get.
The Chair: We thank you, Mr Cunningham, for joining us this morning and making your presentation. We appreciate it very much.
ASSOCIATION OF MUNICIPALITIES OF ONTARIO
The Chair: We now have the Association of Municipalities of Ontario, Mr Mundell and Mr Anderson. Thank you very much for joining us this morning. We have 20 minutes together. If you would make your presentation, we'll fill any remaining time with questions.
Mr Terry Mundell: Mr Chair and members of the committee, it's a pleasure for me to be here today on behalf of the Association of Municipalities of Ontario. My name is Terry Mundell. I'm the president of the association. With me today is Roger Anderson, who's a regional councillor and the deputy mayor of the town of Ajax and the vice-president of our association as well.
There are many aspects of Bill 106 that are favoured by Ontario's municipal sector. Municipalities have asked successive provincial governments for assessment reform and property tax reform. Bill 106 is the first instalment in a two-stage legislative reform process, establishing a new model of assessment and tax policy that will have immediate impacts across Ontario.
Generally, municipalities support the direction and intent of Bill 106. The legislation will give municipalities the financial tools they need to decide on the best tax policy approach to suit local needs. Municipalities are prepared to account for local decisions that reflect local circumstances and local priorities.
There are, however, aspects of Bill 106 that are at odds with municipal interests. The committee and the government need to recognize the enormous impact that assessment reform will create in communities where assessments have not been updated in recent years.
Property taxpayers in Ontario contribute over $14 billion annually to public sector spending. It is an amount almost equivalent to personal income tax in Ontario. In 1997, well over half of local taxes will flow into the province's education system. The remainder will fund critical public services in communities across Ontario. Police services, fire protection and prevention, child care, welfare, economic development, roads, transit and local infrastructure are just a few of the critical services that are financed through municipal property taxes.
In 1998 municipalities will effectively fund all local services. If current proposals are accepted, billions of dollars in municipal property taxes will be used to subsidize a range of provincial services, including income security for people with disabilities, health care, welfare and social housing.
The magnitude of these financial responsibilities means that our assessment and property tax policy framework is the foundation upon which Ontario's system of public services is built. Municipal governments, our communities, property taxpayers and the provincial government have a fundamental interest in an assessment and property tax system that is equitable, fair and sustainable.
In 1997 the provincial government is undertaking a province-wide reassessment based on 1996 values. Municipal financial stability and all the proposed Who Does What reforms are entirely dependent upon the province's success in this endeavour. If this project is not successful, municipalities will not be in a position to take on the massive shift of financial responsibility the province is proposing, nor will they have any capacity to moderate the resulting property tax increases or shifting tax burdens.
The province has also announced that the responsibility for assessment services will be transferred to the municipal sector in 1998. While municipalities accept the policy rationale for a municipally managed assessment services system, like the Who Does What advisory panel, we do not accept that the transfer of responsibility should occur before the new assessment and property tax system has stabilized.
As municipalities plan for Bill 106 and its impacts, they will need high-quality, reliable information for financial planning and to make decisions on local tax policy. Municipalities and property taxpayers will look to the Ministry of Finance for a comprehensive package of information on new processes and on the impacts for households and businesses across Ontario.
AMO was greatly encouraged by recommendations put forward to the government by the Who Does What assessment and property tax reform subpanel. Many of those recommendations are realized in Bill 106. These changes are generally supported. Other recommendations from the Crombie panel are expected in stage two of the legislative reform. Critical among these is improvements to the assessment base of Ontario's northern communities.
Some aspects of Bill 106 are contrary to the best advice received by the provincial government. I'll turn to those now.
The elimination of the $170-million provincial farm tax rebate will result in economic hardship for many rural municipalities and it will result in property tax increases. AMO rejects this aspect of Bill 106. We do not believe this is an issue which is appropriately dealt with through the municipal property tax system, and therefore urge the province to find an alternative way to achieve its farm finance policy objectives. In some farming communities, the rebatable assessment can range up to 48% of the total tax base, resulting in 36% mill rate increases.
By eliminating the provincial farm tax rebate in favour of a municipally financed 75% discount on farm property taxes, the province will shift massive costs to local residential taxpayers. Ultimately, even farmers will pay more as residential tax rates increase to cope with revenue losses that result from this decision.
Asking property taxpayers to subsidize provincial farm policy does not make sense. The idea was rejected by the Who Does What panel, it is rejected by AMO, and it will be rejected by municipalities and property taxpayers across Ontario.
The issues are the same for managed forests and conservation lands. The financial impact is over $8 million for rural communities.
AMO supports the elimination of the business occupancy tax. For many years, both municipalities and the business community have criticized the tax as unnecessarily complicated. Its design and distribution is wanting of any sound policy rationale. Municipalities have also found the business occupancy tax very difficult to collect. Being an occupancy tax, it is not secured against real property. The province should take steps that will allow municipalities to recoup millions of dollars in uncollectible tax arrears that have resulted from the current business occupancy tax system.
The government's assurances that municipalities will be able to recoup the business occupancy tax by distributing the burden across any or all property classes is a critical component of its decision to eliminate the tax. While the action is effectively revenue-neutral, it will result in tax shifts among businesses and industry in Ontario. The success of this plan will depend on the province's strategy to communicate these important policy changes to the public and to the business community as soon as possible.
The government also needs to be cognizant of the impact of the elimination of the business occupancy tax on business improvement areas. When property taxes are no longer paid directly by business tenants and are paid instead by business property owners, there will be substantial impacts in the business improvement area program. The new Municipal Act will need to ensure that the objectives of the important business improvement area program can still be met within the new tax policy.
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AMO supports the government's decision to change tax policy legislation so that local tax policy is determined locally. The move increases municipal autonomy and accountability. Municipalities also support the use of regulatory authority for implementation of the tax policy changes, ensuring maximum flexibility to adjust and address issues as they arise. The minister must release the regulatory components of Bill 106 as soon as possible. They should be released prior to third reading, in order to allow a meaningful evaluation of these important elements of the legislation.
There is a tremendous concern in the municipal sector about the timing of the implementation of Bill 106 and the impact it will have on municipal cash flow if there are delays in issuing interim tax bills. Current information indicates that municipalities will not receive the assessment roll until April 1998. The implication is that municipalities will have to issue an interim tax bill without having access to key information about assessments and the changes associated with the education levy.
The timing is also an issue for tax policy planning and decision-making. Municipal councils will need access to assessment information in order to calculate appropriate tax rates for various property classes. AMO believes that the proposed schedule for receiving such information will make it very difficult for municipalities to do this. The absence of accurate information will undermine the new tax policy framework in 1998.
Generally, AMO supports the arrangement of property classes as set out in Bill 106. We are encouraged that the legislation provides regulatory flexibility for additional property classes to address issues such as small retail properties. AMO also supports the fair measure of local autonomy that is provided for local tax policy decisions.
Municipalities are prepared to account for local decisions on tax rates and tax burdens that reflect local circumstances. The committee and the government need to be aware, however, of the potentially negative impact this policy change may have on municipalities which are single-industry towns, communities which rely heavily on payments in lieu and communities which have a limited non-residential assessment base.
Unfortunately, however, since there were no impact studies done before making the tax policy change, it is difficult to know what the overall impacts will be. The impacts of the Who Does What reforms are also an unknown variable in determining the aggregate impact on property taxes. AMO strongly recommends that such an impact analysis be done prior to the bill's third reading.
The province has acknowledged that Bill 106 is the first step of a two-stage legislative process. There are many important issues that have yet to be resolved. AMO urges the government to build on the advice it received from the Who Does What advisory panel and to put in place a system of property taxation that meets the needs of municipalities and property taxpayers in every part of Ontario. Key examples are exempted properties, rights of way and properties that are difficult to assess, such as mining facilities, and the assessment of unorganized territory. AMO strongly recommends that decisions on outstanding assessment and property tax issues be made in consultation with Ontario's municipalities.
As we have noted, assessment and property tax is the cornerstone of quality public services in communities across Ontario. It is also the foundation on which the government's provincial-municipal reform plans for 1998 are built.
Bill 106 is very important legislation for municipalities and there is much in it that we support. It represents substantial reform of our current assessment system and fundamental changes to property tax policy in Ontario. Many of the changes have been advocated by our sector for many years.
Municipal government in Ontario has a long tradition of sound financial management and full public accountability. According municipalities a substantial level of autonomy over local tax policy is appropriate and makes good business sense. Municipal governments have proved that they are up to the job of managing Ontario's communities and of leading Ontario into the 21st century.
The implementation of Bill 106 will be very challenging for municipalities and for the provincial government. Success will depend on the quality of the partnership and on the province's commitment to help municipalities make Bill 106 work for Ontario's taxpayers.
The Chair: Thank you, Mr Mundell. We'll start with a two-minute round of questions, with the NDP first.
Mr Pouliot: This is a renewed pleasure. You are truly a professional presenter by this time. You have been totally immersed, Mr Mundell. If you will allow me a very brief prelude, then I only have one question for you. It's one that causes a problem, I think. It has to do with your interim tax levy.
Context: The property taxpayers in Ontario contribute over $14 billion annually to the public sector and you're just saying approximately the same amount as the PIT, the provincial income tax. What we haven't factored into the relationship and the comparison is a 30% decrease in PIT, grosso modo at roughly net in four instalments, two of which have already been implemented. They're out in the marketplace. It took $5.4 billion and 30% of $14 billion to $15 billion. So this exercise here is not revenue-neutral. That money has to come from somewhere. One thing is the added responsibilities you will be facing. The proportion of the property taxes will grow substantially in terms of the overall responsibility that we have in the daily services.
You mentioned the interim tax levy, and I want you to help me with the following timetable. You will look at the 1997 responsibility, general purpose and education. You'll add them up and you'll see the total, let's say, residential, the total base was so much, the total amount was so much. I will go to the maximum allowable by law, and I'll give you an interim tax levy because your fiscal year will start January 1: 50%. Then everything changes. You have 50% of last year's taxation. There are no more schools on January 1. The fiscal year at the provincial level starts April 1. Your assessment has not arrived. Because they say April, there will be all kinds of appeals. It's going to be a bit of a horror show.
What am I to expect at the industrial, commercial and residential level until my final levy? Because you have to be consistent, and you have been, that if you say 50% of last year, there cannot be a large increase compressed over a short period of time. So you have two problems: One is knowing what to charge for what services and the other is time. Time is not your friend here; it is your enemy.
The Chair: You're running perilously close to not giving him time to answer.
Mr Pouliot: Thank you. I apologize. It's so interesting. I get so involved in this.
The Chair: I appreciate that.
Mr Mundell: I thank you for the question. The issue that we have of course, time is one which is very important and we may have some difficulty, by the sound of it, getting the rolls returned to us so that we can make decisions as councils on what it is we think, number one, we need for our interim levy; but number two, I think what we very much need to do is have the information in front of us that shows the system as it was presently and shows the relative burden between classes, and then shows us the information with the proposed new system and the relative burden between classes as we see that.
We can then make decisions as an accountable elected council to determine on our interim levies and our levies for the course of the year what those relative burdens would be and how they affect the properties and how they best then suit our communities, so we can try and minimize the impacts, if we can, as best possible. We need the information to do that, and it looks as though we're not going to have that information. Time is of the essence but the information is extremely important.
Mr Tim Hudak (Niagara South): Thanks to both of you from AMO for your presentation. I wanted to ask you a couple of questions very quickly that you have brought up. My understanding right now is that municipal affairs and finance staff are working with municipal clerks and treasurers, the association of tax collectors and AMO on the issues that you brought of timing, of the data needs of municipalities and the nature of information needed to get to the interim levy when necessary. As well, when the finance minister was here earlier this week, he released some draft regulations. If you didn't get a chance to get hold of those, perhaps somebody from the staff can get them to you.
My question, Mr Mundell, was, I saw the news article that came out earlier this week where Mr Phillips opposite said that municipalities are likely going to go after small business and residential property taxes through this bill, because the province has decided municipalities are able, as partners, to make decisions at the local level as to where they should receive their property tax from. I have much more faith in municipalities than my friends opposite have demonstrated. Do you think municipalities are going to target small business and residential? Should we make some regulation that says how much you can tax, from what sector municipalities can make responsible decisions about where they raise the revenue from?
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Mr Mundell: Again, I think municipalities are very much the right group to make those decisions. The check and balance in the system is the accountability. The municipal election is every three years. I am not only a municipal politician, I am a small business owner. I can tell you that my family, my business community in my municipality has a very short memory and they will very much hold me accountable for any decisions I make in terms of how I affect any classes of property taxpayers across the province.
I think what we need to recognize and what needs to be happen is that we need to have the information, to look at the system as we have it today and look in our community and say: "Here's the relative burden between classes in our community today. Here's what we know. Then let's have the new system. Let's have that new system and let's have that same model for our community." So now as a municipal politician I can sit down and look at what those relative burdens were and what they look like under that new system, and I start to look at making decisions and adjusting within those bands to try and limit, where possible, any of those major shifts that we think may occur.
We very much need the information. That's why I can't stress enough to you the timing of how soon we need that information, and the importance of the government, very much the importance of the government, getting out and communicating to people across Ontario the changes in the tax policy. I think it's very important, but we need the information.
Mr Phillips: I have two quick questions. One is on the business occupancy tax, which is $1.6 billion that's gone, and as you point out in your brief, it has to be revenue-neutral. What is your expectation? Do you think municipalities will recover part of it from the residential or will it be recovered from business? In my reading of the bill, we've got to sign this contract in a few weeks and there's no changing it. My reading of the bill is that if you recover it from the business sector it's got to be recovered on the basis of the assessment by business. Has AMO talked about how most municipalities plan to recover the $1.6 billion?
Mr Mundell: Again, the issue tends to be -- and I think everybody understands that it needs to be revenue-neutral, that there is no more money -- but the issue tends to be that it will vary community to community, depending on what your relative burdens are now and the mix of property classes you have in your community. It's very much different across Ontario, and I think we all know that. That's why it's so important that councillors have that information and that's why the timing is so important. There is some thought that we can't get this done for 1998, and we maybe should be looking at delaying this so that we make sure we get off on the right ground.
Mr Phillips: Is your advice to us that, if we don't get the impact studies, the regulations, we should pass the bill anyway? That's where we're at. We're being asked to sign this contract. We can't get in and look at the factory, if you will. We've got to buy this thing sight unseen. Are you advising us to sort of sign the contract sight unseen, or should we get -- you say it should be released prior to third reading.
Mr Mundell: I think clearly we have supported a change in the tax policy for Ontario, the assessment system for Ontario across the province. That needs to be done. We just need to get more information.
Mr Phillips: Before we agree with it.
Mr Mundell: I think it's important that we get the information and we look at the regulations before we get a total look at the package.
The Chair: Thank you very much, Mr Mundell. We appreciate your presentation to us this morning.
COLT CONSULTING SERVICES LTD
The Chair: We now welcome Colt Consulting Services, Mr Howard Colt. Thank you for joining us this morning, Mr Colt, and thank you for going 20 minutes early. We look forward to your presentation and we'll have some questions for you, given time, at the end. Please proceed.
If the members could hold it down so that we could have a presentation. Perhaps you could step outside if you wanted to have further conversations. Mr Pouliot, perhaps you could step outside if you wanted to have a further conversation.
Mr Pouliot: They represent Manitouwadge, my municipality.
The Chair: Oh, that's very important. I understand. We all understand. We know that Mr Pouliot never misses an opportunity.
Mr Colt, I think we now have order.
Mr Howard Colt: Mr Chair, committee members, I would like to thank you for providing me this time to address your committee on such an important matter. I am the president of Colt Consulting Services Ltd, a property tax consulting firm in Toronto which provides professional advice and representation to property owners throughout Ontario. As such, I believe this legislation and your recommendations affect me and my colleagues to an even greater extent than the average citizen. It will be my job to play by your rules.
I have been practising in Ontario since 1986 and completed a number of research papers on property tax assessment reform during my university studies prior to entering the profession. During the course of business, I regularly appear before the Assessment Review Board and Ontario Municipal Board as a taxpayer advocate. I have lectured across Ontario on issues relating to property assessment and municipal taxation, and I am regularly consulted for my opinion on these matters.
The property tax consulting profession has expanded and matured since the province originally took over the function of property assessment in the 1970s. We now have a large and well-established industry which the public calls upon regularly to assist them in weeding through the bureaucratic system of property tax assessment.
Having this background, I wish to advise this committee that I welcome the government's move to reform the, in some cases, antiquated assessment system in Ontario. With changes come uncertainty, and uncertainty leads to concern. It is clearly understandable that many taxpayers, organizations and ratepayer groups have individual concerns over how the assessment changes will affect the individual. I believe there must be an equitable distribution of the property tax burden among all taxpayers and that this assessment system should be based upon current property values.
With respect to taxation policy, I advocate an assessment system which provides a foundation for the equitable distribution of municipal taxes, and I believe this system should reflect 100% of market value relating to the most current data available. As a taxpayer as well, I believe the system must be delivered efficiently and cost-effectively. The taxation of personal property, machinery and equipment, and chattels is extremely costly to maintain, as is the taxation of individual businesses under the current business occupancy tax. I therefore support the government's proposals with respect to these factors. I also believe that properties receiving similar services pay similar taxes.
With these endorsements made known, I now make the following comments with respect to the proposed legislation and process of assessment reform. While the proposed changes affect every property owner in Ontario, it appears that the changes were painted with a very broad brush, and much detailing is now required. The proposed tax classes are simply a form of categorization which are subject to definition. To date, the legislation does not address these definitions. To leave these definitions to policy or discretion opens the door to substantial litigation.
In addition, the problem with categorization is that it is dated. This is clearly apparent with the current section 7, business assessment, of the Assessment Act. As time passes, different construction and styles emerge, as do land uses. An industrially zoned property today may actually be utilized in a commercial function some time in the future.
Tax rates based on these broad categorizations do not reflect the actual burden on municipal services. The tax bands or categories should therefore be reviewed and mandatorily expanded to reflect the cost of services which are paid for through the tax revenue. This is clearly exemplified by the municipal costs of providing services to 300 units in a single condominium or rental building versus providing the same services to 300 individual homes.
The proposed foundation for assessment is current value. With a few exceptions with respect to farm, conservation and managed forest lands, the value considered is apparently its market value, which is often based on the highest and best use of the property. In many instances, specifically that of land being held for development purposes, its value may be much higher than a rate which reflects the cost of services used by that property.
In addition, it is most often the property owner of development land who pays for the capital cost of servicing this site. In this regard, there should be consideration given to all vacant lands, especially in light of the idea that improved land places greater demands on municipal services than do vacant properties.
The Who Does What panel commented on a two-tiered tax system for commercial properties to address the concerns of small businesses, primarily in Toronto. This negates the effect of tax reform to create equity. There is no foundation to support a lower rate for lesser-valued or smaller properties. By doing so, competing properties, and subsequently businesses, would be taxed at different marginal rates. This would create a surtax on a business that chooses to establish itself within a large development as opposed to an individual smaller site.
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Bill 106 permits municipalities to adjust tax rates so they fit within tax bands established by the province. As this move is permissive, as opted for by the municipality, the choice may be made to maintain the status quo. This is clearly not the intention of the legislation. While understanding that there may be tax shifts resulting from proposed changes -- and rightly so, as inequities currently exist -- municipalities must mandatorily establish tax rates within the proposed tax bands within a time frame set by the legislation.
Part of any fair tax system is that of an accessible review program. The proposed amendments are a step in the right direction in this regard. The current time frame to review and file complaints to the Assessment Review Board is clearly based in favour of the taxing authority. The move to establish a 90-day review period which is completed after the interim tax bills are mailed is applauded. However, as the Assessment Review Board is the ultimate arbitrator in most complaints, its rules should be expanded to adopt many of those currently held by the Ontario Municipal Board.
Historically, assessment appeals have taken from eight months to three years to resolve, and payment of refunds resulting from successful appeals were delayed by an additional year in some municipalities. The municipalities have the option to pay interest on these refunds, but my experience is that few do so and the ones that do pay are at a very low rate. The Who Does What panel recommended that municipalities pay interest on tax refunds resulting from successful appeals. The rate of interest should be set annually through a statutory formula within the legislation.
The proposed provisions dealing with averaging of valuations for determining assessments commencing in the year 2005 appear to be flawed. In particular, shifting values downward, either through use or demolition, appears not to have been taken into account in this bill.
Bill 106 eliminates the provisions of the Municipal Act to apply a residential mill rate on vacant commercial properties. Assessors have historically been reluctant to give consideration in value due to vacancy problems. Furthermore, as with vacant land, vacant buildings do not place the same demand on municipal services as do occupied properties.
This change will now cause the Ministry of Finance to be required to review vacancy trends more closely in their valuations. On the surface, this is not inconsistent with good appraisal and valuation practice; however, in the past, commercial landlords received a tax adjustment through a simple administrative process. Under the proposed system, detailed analyses will be required by both the taxpayer and the Ministry of Finance. This, in my opinion, will lead to the taxpayer requiring additional expertise in valuation principles, and if he does not posses these skills, he will incur added expense by seeking professional advice. This will only lead to more litigation and a higher delivery cost of the system.
With the use of computerized tax billing systems and automated bank debits, many municipalities have given taxpayers the option to pay via direct debit of bank accounts. As these programs are generally set up in December of the prior year, the billing is based upon the prior year's assessment multiplied by the interim mill rate. In many instances where assessments have been reduced from one year to the next, the interim taxes were calculated unfairly using the prior year's higher assessment. Municipalities must be legislated to calculate interim taxes using the current year's assessment.
On January 16, 1997, the Minister of Finance stated that the Ontario government "will return delivery of tax assessments to the local level as of January 1, 1998. This will give municipalities the tools to provide assessment services to meet local needs."
Whoever delivers the service must also be accountable to the persons who pay for it, ultimately the taxpayer. The Ontario government has historically ignored the interests of taxpayers in establishing taxing authorities and mechanisms of collection. It is our voice that must be included and heard in order to establish an unbiased and equitable base for the collection of the province's municipal revenues.
Thank you, Mr Chairman and committee members, for your time.
The Chair: Thank you very much. We have about two minutes per caucus for questions. We'll start with the government caucus.
Mr E.J. Douglas Rollins (Quinte): Thanks for your presentation. I appreciate it very much. One of the concerns for me, being from more or less rural Ontario, has to do with land for future development that sits relatively close to a municipality, being farmed and getting farm tax rebates, and you know that in a year or two that land will be turned over to development land. What's your feeling on the process for that land? How should it be taxed? Should there be some reassessment or what?
Mr Colt: I believe in the system that agricultural land is very important to the province and that land currently used for farming operation continue to be taxed as farm land. As it becomes development land, under the current system the land is valued at a higher, developed site rate. I believe that's unfair still, in that land, although not developed and not ready to be developed, is still taxed at the much higher rate while it does not require the services of the municipality. In many cases, land can be unfarmed for many years. My concern is that this will unfairly tax those properties and either spur development more quickly or there may be other problems with the valuation side of things.
Mr Gary Fox (Prince Edward-Lennox-South Hastings): I appreciate what you're saying and I agree with you wholeheartedly, especially on the land that can qualify for the farm tax rebate. It is essential that that land, as much of it as possible, remain in agriculture, and it shouldn't change until the services are required for its development.
Market value assessment has been done in the riding I represent, and I think it's only fair that this be done across the province so we're all on a level playing field. I certainly agree with your presentation.
The Chair: Since we have a no-show, perhaps I'll be overly generous. Ms Bassett, did you have a question?
Ms Bassett: Thanks so much for your presentation. I just wanted to clarify something. You say you're in favour of what we've done with the appeal process, but you say the ARB's rules should be expanded to adopt those currently of the OMB, which of course is the process we're getting rid of. Could you explain what you mean? I thought that might already be there.
Mr Colt: In many cases over the past three years, the rules of practice for the Assessment Review Board have been expanded so that larger commercial properties and larger appeals are more formalized. It's very important to have an informal avenue for appeal for the individual taxpayer and homeowner, but in many cases there are substantial values at stake in dealing with properties such as the SkyDome, for example, where you need a more formal process of discovery and investigation and exchange of documentation and review of the decisions the Assessment Review Board makes.
As it is now, the Assessment Review Board is moving towards that direction independently, without any additional legislation. It's being recommended by the chair of the Assessment Review Board, and many of those recommendations have been adopted in their regulations.
The Chair: It's Mr Phillips's turn. This has developed into a five-minute round of questions, for your information.
Mr Phillips: Right now in Bill 106, the small business break is not permitted. As we look at it, when the business occupancy tax is gone -- and that's part of the bill, that it is gone -- it has to be recovered by municipalities. We've run into no municipalities that say they aren't going to recover it, and everyone we've talked to says they're going to recover it from the business sector. It is taking the business occupancy tax and simply rejigging it and reallocating it. Because business occupancy tax tends to be lower on smaller businesses on average, it looks like the smaller businesses are going to be hurt or hit and larger businesses will benefit.
The board of trade, the Canadian Federation of Independent Business and all the business groups, with the exception of the chamber of commerce, have supported your recommendation, which is that you don't establish two classes of business, small business and large business. The minister has said they may bring it in later on in the spring. We haven't seen it yet, but they may bring it in. So we're not sure he's going to do it.
Can you give us some rationale of why you think it's a bad idea? You've got a paragraph here, but just give us some examples of what happens if you do have that.
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Mr Colt: Very simply, you can have two businesses that are operating -- let's say that the break is given for every property that is under 5,000 square feet of commercial area. If it's done that way or on a formula value that relates to approximately 5,000 square feet, you have two businesses, one operating in a 4,000-square-foot strip mall and it gets the break of approximately, say, 10% or 20%, whatever that break is. You have another business down the street that's in a much larger plaza, to the tune of 20,000 square feet. It's the same 4,000-square-foot business, independent store, that's in both plazas. One gets the 20% break; one does not. There's an inequity there. Why would any businessman locate in a larger facility or larger mall if he knows he's going to be paying 20% higher in taxes? The justification of it on a valuation side can't be seen.
Mr Phillips: There's a debate around the "current value" definition. Crombie had, it appears to us, one suggestion. This bill appears to us to have a different suggestion. The Crombie recommendation, as we read it, said it's essentially for the current use of the property. This bill, as we read it, is for what it could be sold at on the market. We suspect there's a difference between the two, although we can't seem to get clarification on that, and if there is a difference, then the concerns you express here in your second point become real, where I gather that for a property that could be sold for another use, the value of it will be driven up, forcing the sale of it for another use very quickly because you couldn't afford to hold it for the current use.
Mr Colt: That's correct.
Mr Phillips: Am I interpreting your concern properly, and have you had an opportunity to look at the Crombie panel wording versus the wording in the bill?
Mr Colt: Yes, I have. The concern I have is more specifically for specific-use properties, primarily development land. Where a property is used to its highest and best use currently, its current use will reflect its value as well under the current proposed legislation. With respect to development land, it's exactly as you put it, that a property may then be developed more quickly because the landlord cannot afford to hold on to it.
The difference in wording also applies to, as an example, an older industrial building situated right next to a residential development. If its value is current use, then, as Crombie proposed, which was the highest and best use of the land and the current use of the building, the land would be valued based on its potential development value, but the building would be valued given the parameters of an old industrial building. You have double valuation, because ideally if for the land its highest and best use is to be redeveloped, the building has no value. So under the Crombie proposal, it's unfair to the taxpayer of a property that has a development potential that's not being utilized. Under the current legislation, it's more reflective of highest and best use, which is what the market anticipates for the value of the property as well, with the exception of development lands only.
Mr Pouliot: Thank you, Mr Colt, for an in-depth analysis. It's a sort of forensic account of Bill 106, and you bring forth a new dimension.
I want to thank both my colleagues, Mr Rollins and Mr Fox. They've asked, in my opinion, very pertinent questions, but they know the impact of 106 on farm lands and its communities. That was to be tentative, so thank you. They've saved me that.
I have a question, but I may not be able to word it the right way, so try to anticipate what I'm about to say. You have an attempt to -- well, legislation forthcoming on current or actual market value assessment. Assessment means that you assess. But you also have some new definitions, categories, blocking. I'm just wondering, because I would imagine that assessors will be using the present method of assessing -- plus there will be a bit of a rush because there's so much to be done; the timetable is compressed -- if we're not to expect after appeals, or after everything is shaken out, when it comes out in the final product, that their very good intention of reassessing to a market value, because of the other definition and the result of appeals, that we might not have to do some of it again, and to what extent. How do you read that?
Mr Colt: I see that there will be a lot of work required over the next three years by part of the Ministry of Finance in refining those values. Unfortunately, the time frame proposed to put this system in place is very quick, and there will be a problem with that.
The greatest indication is what's going on in Metropolitan Toronto right now, and it's not that the assessments are falling drastically as a result of the implementation or adoption of the 1988 market values by the assessment authority; there's a problem in that not only are they implementing those values, but they're finding that many of those values are incorrect and that they have to refine them further. Those are being refined through the appeal process.
Where we're moving towards a market value system, the still-finite detail comes down to the value of a particular property. There's a lot of work, and that's what my job is, once you've developed this system: how to apply a specific value to each property. I have to do that and there's a lot of work involved with that and there are going to be a lot of appeals, as you're aware. There are proposed to be some 600,000, and they won't be resolved very quickly.
Mr Pouliot: Mr Colt, part of the bill allows for a transition period of some eight years, and it's seeking an equilibrium between those who will be most severely impacted either way, the beneficiary and those who have to make up for the shortcoming. It reads well and it's well intended. You have to arrive at a time, sort of reasonable, but human nature -- you see, if I was in arrears or if I was to pay, eight years is a very short time. But if I was to benefit, in other words an acquiesence that I've been overpaying or overassessed, eight years is a very long time. While it's well intended in terms of the legislation, you have very patient people on the one hand and impatience on the other hand. I'm not saying it's going to take a generation to heal, but it's something that goes beyond the legislation, because when it hits the road, it's not an easy task for our local politician.
Mr Colt: It's going to make computer programmers who deal with taxation programs very rich over the next six months. That's what it's going to do, this deferral system.
Mr Pouliot: They already are very rich, but that's another matter.
The Chair: Thank you, Mr Colt, for joining us today. It's a very interesting presentation.
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CITY OF BRAMPTON METRUS DEVELOPMENT
The Chair: We now have the pleasure of having His Worship Peter Robertson from the city of Brampton joining us. Mr Robertson, thank you very much for coming to the standing committee on finance and economic affairs. We have 20 minutes together.
Mr Peter Robertson: Thank you, Mr Chairman and members of the committee. It's a pleasure that a municipal official is invited or allowed to give some input from the grass roots on how assessment is functioning at the local level. I'm going to present what the city of Brampton's position is, distribute to you a report from our staff to in more detail tell you what our policy and concern is, and try to illustrate a very serious problem with two case studies, one that I'll recount on behalf of a farmer who unfortunately couldn't come today -- he's out of town with his wife -- and one from the development community. I have Bob Hooshley here from Metrus Development. I'll try to go quickly because the time is very short to tell the story. Because we've been moved forward, maybe you'll squeeze out a little time in question period.
I'd like to address two parts of the bill. The first is the assessment delivery model, and the second is the treatment of lands slated for urban development. With your indulgence, I have brought along one person in the development community, Bob Hooshley, as I have said.
I'm certain that we want to establish a fair assessment system, and not a delivery system that creates a conflict between local government and citizens who are assessed.
The city of Brampton spearheaded a consensus among the municipalities in the greater Toronto area known as the seven-point plan, which was part of the restructuring of the GTA. The plan recommended a number of points, seven points, but the one critical one was to ask the government to stop creating special-purpose bodies.
I understand that the government may be considering the creation of a special-purpose body to deliver assessment services. An assessment delivery model would become a provincial agency like Ontario Hydro, which has developed into a bureaucratic organization with little or no accountability to the community.
I would encourage the province to avoid the temptation of creating another special-purpose body and to return the function to the municipal sector. At one time, you likely know, assessment was done at the municipal level. Mr Davis said, "Let's move it to a provincial function just till we get it fixed." It's taken 25 years to fix it, and I'm going to tell you how bad it is. It's not been fixed at all.
The policies for assessment should be developed at the provincial level to ensure the consistency. There's no question there; there has to be a uniformity across the province. But there is an advantage of implementing it locally because I think we can be accountable and deliver a service, or to contract it out to the private sector is another option that we at the municipal level could do. We are learning that contracting some things out is an efficient model. In this way, we'd be able to assure accountability.
The second reason is that I'd like to tell you about the problem with the category "vacant land." Before I do, let me just tell you about the farmers I'm representing today. Their names are Joanne and Lorne Wilson, at the corner of Highway 10 and Mayfield Road, which is at the outskirts of our city but it's proposed in the future for residential development.
He sold his property in 1992, or so he thought, to a credible developer. As there was a downturn in the economy, the developer never kept the payments and the land should have reverted back to Lorne and his family. However, through the slickness of the courts, this developer held on to the land legally and Lorne had to go to court to try to get the ownership back. You know how that goes and how the bills escalate. At all times, he continued to farm the land. He understands the problem, if you do not farm your land, from a tax point of view.
In 1992 his taxes were $14,008. There was a supplemental put on it as soon as the assessment department smelled that this was going into a residential zoning, and that was a whack of $90,000. Lorne appealed it and won at the assessment review court. In 1993 the tax bill came out at $100,000. He appealed that and it was returned to $16,000, at the farm rate.
Every year he has to appeal because the assessment department does not take the results of the adjudication of their peers at an assessment review. That's not bad enough. He had to go to the Ontario Municipal Board because the regional assessment commissioner appealed his taxes to the OMB in 1992, 1993 and 1995. Each time he won his assessment review at the OMB and each time the persistence of the assessment department to impose their morality on this situation progressed.
This year, in 1996, guess what his tax bill was proposed to be by the same assessment department? Some $112,000, when four years in a row he has had to appeal it. The cost of hiring a lawyer and a consultant to go through that process is almost equal to the taxes. If this is not harassment, I don't know what it is.
If this was a function of the city of Brampton or the region of Peel, we might have the same staff with the same morality, but sooner or later Lorne would come to the mayor and the political people and say, "Come on, folks, isn't it time you looked into how your staff are behaving and do something about it?" Surely, at the local level, if his request was a fair one, we would respond. That's the nature of local government, to listen to your constituents, try to apply what is fair and then to do it.
That's just a reinforcement to say, if you leave it in a group of bureaucracies, however it's structured, we will never be able to deliver that kind of accountability.
I'm going to switch to the second topic and then introduce you to Bob.
The solution, we think, is to have a fair assessment for vacant land identified as farm land separate from vacant land that is slated for development. The present draft legislation provides for six classes and leaves vacant property as it relates to, principally, zone. As it is zoned, so goes its assessment, which is a problem. In our community, a zoned piece of land might take from 10 to 20 years to come to development, because the official plan of the city of Brampton is a 20-year plan. We need a ready supply of zoned land in a system to respond to the market and stay competitive.
If bona fide agricultural land was given a $300 to $600 assessment value, let's say, and a vacant industrial category was given a $3,000 to $6,000 assessment, it would solve that problem of industrial land being held for 10 or 20 years, because if it's left the way it is, they get nicked for $60,000 or more an acre. Mr Degasperis is a large developer in our community. We're happy that he has some zoned land so that if a business comes to our town, he can turn it around in a short time and bring jobs to my city. He needs to have a zoning on his land.
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The little guy who's next door, 25 Italians who have bought 25 acres and had it zoned, deserve the same kind of attention a large developer might have. When they have their land moved up to $60,000 an acre for taxes, even though they're farming it, they go bankrupt; they can't pay their taxes. That's one of the contributing factors for why the banks in my city are taking over more and more land under power of sale. I'm not there to represent the banks. What I'd like to do is have the ownership of the land in a group of people who deserve it. It's a very serious problem.
I'm going to introduce you to Mr Hooshley and let him speak from the development point of view and their pressures.
Mr Bob Hooshley: Thank you for the opportunity to discuss this issue, which is of great importance to the land development and building industry.
Metrus Development is a large company with land holdings in many southern Ontario municipalities under various stages of development. We see an unequal treatment of tax assessment across the province and we believe a fair and consistent approach must be found. For the last several decades, vacant land was assessed based on its use and not its potential value.
This promoted lands that were being processed towards development to be kept in agricultural use until they were actually needed for development. This was fair to the land owner, since it allowed the developer to work towards a higher end use for the land without the burden of increased taxes. It was fair to the municipality, since it encouraged development but didn't add to the costs of the municipality since no services were being provided to that vacant land, such as road maintenance, garbage collection or school services, for instance.
However, triggered by a recent court decision, some assessment offices have become very aggressive in assessing lands in transition towards development and have maximized assessments at great expense to the development and building industry. Some examples of the impacts of this aggressive approach we have seen are as follows.
Farms were traditionally taxed at the rate of about $40 per acre; that's the final tax bill, not the assessed value. Once work started on a site, moving some earth that ceased to allow farming, those taxes went up by a factor of six, to over $200 per acre.
Once vacant lands were registered and were still vacant sitting there but not built on -- for instance, a school site -- the tax charged would go up by a factor of 25 times to over $1,000 an acre.
Zoned industrial blocks, vacant industrial blocks, are taxed at 80 times vacant rates; zoned commercial, over 160 times the vacant farm rate; vacant serviced lots that haven't been built on but are sitting there in a bulk situation waiting for building permits to be issued, over 200 times the tax rate on vacant farm land. And all this vacant land has no municipal services being offered to it.
The reaction of the industry is to find ways to reduce this tax burden, which we believe is unfair, since no municipal expenditures are triggered by the development of these lands until they are actually occupied.
There are also negative impacts from a provincial perspective caused by these escalating assessments. For instance, there will be little incentive to farm these vacant lands, resulting in lost agricultural production and related agricultural jobs. The increased assessment in taxes will drive up development costs, housing prices and commercial land costs. The supply of ready-to-go land will be reduced, thereby lowering our competitiveness against nearby US markets. There will be delayed or lost opportunities, which will result in potential job losses to workers in our industry.
We do believe our industry should pay its way, but not be unfairly taxed on non-revenue-generating assets. Land development is a costly process, since fees and development charges are incurred at every step of the way to cover the direct costs of municipalities throughout the approval process. We also pay our fair share of provincial and federal taxes, as all industries do, on the materials and services we buy.
We recognize that there is an increased value in approved land that is still vacant and believe that an approach to tax assessment in a fair way is possible. Based on our experience in other areas such as Niagara region, we propose that lands in transition towards development trigger a higher tax assessment only at registration of a development plan and that this assessment be based on 25% of the final assessed value. Once a building permit has been issued for a parcel of land, the assessment should then go to full value. Zoned land still under agricultural use would be still assessed at agricultural rates.
We believe this compromise benefits all parties. It would encourage developers to move through the development process, to take advantage of the market opportunities when they arise; it would encourage farming on vacant lands, with all the associated benefits; and a 25% assessment would give municipalities welcome revenue on lands for which they have no expenditures and help cities like Brampton achieve their business development goals. It would assist in creating employment and increased competitiveness across the province.
In conclusion, we ask that a specific section be added to Bill 106 to address this request. We thank you for the opportunity to put our points across.
The Chair: Thank you very much. That leaves us about two minutes each for a round of questions. We start with the Liberals.
Mr Phillips: Mr Mayor, on the two points you raised, on the form the assessment system will take, unfortunately it's not being dealt with in the bill; that's being dealt with elsewhere. But we certainly heard your concern. On the second issue you raised, the bill is cloudy on this issue. In our minds, the Who Does What panel had a certain term they used and the bill seems to be different. But under a couple of sections of the Assessment Act, it says that at the request of a municipality, the Minister of Finance may respond to unusual situations and direct assessors to value certain property under current use if the properties would have a higher value in alternative use.
In other words, it looks like the minister can do whatever he wants, but through regulation. We're having difficulty in dealing in this bill with your concerns, because it looks like the minister is going to give himself the right to deal with these situations in the future, the way we read the bill.
While we have you here, Mr Mayor, we're going to be asked to sign this bill in a matter of a few weeks, and in our opinion, without anywhere near the information we need. If this were a business -- I come from a business background -- I'd never sign this contract, because they won't let us in to look at the building.
My question is whether your council has had a chance to discuss the education tax on the business sector and how that's going to be handled. The reason I raise it is that over 50% of business property tax goes to education across the province. We are not sure how the province is going to handle that. It's not clear in the bill. Is it going to be a uniform mill rate across the province or are they simply going to say to Brampton, "Please send a cheque to your local school board"? Have you had a chance to find out from the province how they're planning to deal with it, and is that going to be satisfactory to your council?
Mr Robertson: No, we have not found out how they're going to handle it. Your first question was, has our council addressed it? We have addressed it many times and we have some very clear principles that we are encouraging the government to follow.
Mr Phillips: On the business tax for education?
Mr Robertson: Yes.
Mr Phillips: We may be out of time, but maybe you can send that to the committee. That would be helpful, I think.
Mr Pouliot: Your worship, travelling around the province last week, 10 days ago, we were looking at Bill 98, I trust, which makes the transition for development charges from the developers to the municipalities now. I really sympathize with you, because you will be impacted. The developers will no longer have to pay for development charges, it will be your responsibility, and Brampton is most dependent on residential -- and industrial -- development.
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This week you have the impact of assessment on farm land. Now you're going to pick up the slack here; you're going to have pick up the bill. Up to now, with your clerk-treasurer administrators, when you start counting, what does it mean in terms of the tax levy for next year? I know you don't have all the information, but are you going to be able to decrease my property taxes if I'm a resident of Brampton, or is it going to stay the same, or am I going to pay more because it's coming fast and thick?
Mr Robertson: What we believe in Brampton, what we trust the government of the day will do, is to disentangle the different functions, but the bottom line would be a revenue-neutral split. We understand that if education is paid for by the government provincially, that's a good thing because then we know who is paying for education and school boards can't keep whacking up the cost on the property tax. There'll be some control, and surely it needs to be in control. On the other hand, we're trusting that the government will give us a package that will offset that.
Last week, 17 mayors of municipalities of over 100,000 people met and we sent a communication to the government to say: "We commit our staff, regionally and municipally, to work with you to find out that revenue-neutral formula. We think we know a little better how to find it." Let me say that better. The province likely can say, "This is the estimate of what this balance will be," but we think our treasurers can actually run a model in Peel and in the different communities in London and whatever and say: "If you use this model here, it will not be revenue-neutral. If you use this one, it's getting closer to that. Let's try to find that revenue-neutral solution together."
That's the way we do things in Brampton. We need to have developers and the municipality working together or else we can't build a city. Surely we need to have municipalities working with the provincial government to make things better.
Mr Fox: Gentlemen, I assume by this that in the assessment of farm land based on current land use, not vacant land zoning, the proposed taxation of farms at 25% of residential rates would be fair?
Mr Robertson: We think it would be fair, and the idea came from the development community. If we can come to some kind of agreement by negotiation, why don't we do it? If you don't, you leave the assessment department to whack it up to the top level and the war keeps going, and people like Mr Wilson get hurt. But worse than that, these people come to us and say: "After paying three years of your taxes at $60,000 an acre, you can have the land. We can't hold on to it."
You might find it a strange thing to believe that somebody as big as Metrus is saying, "We can't hold on to it." You think that's only a game that little guys play. They can't hold on to their land, if we tax it at $60,000 an acre, for 10 years. How will they create jobs if we tax them out of owning the property? If they have the resources and they keep hold of it, what will the cost of the land be for the homeowner 10 years from now, or for the developer who wants to come in, the business that wants to come in and start a factory? We're just escalating the price of land artificially because of a stupid assessment function and it shouldn't be that way.
We're into economic development. You are and we are. We're working on this together. They are too. So let's get the development community, the province and the little municipality to have a set of rules that makes Ontario stronger and get some jobs happening.
The Chair: Mr Robertson, thank you very much. We appreciate your presentation to us today. Mr Hooshley, thank you very much for joining us.
BEACH ARTS CENTRE
The Chair: We now have Elaine Daviau for the Beach Arts Centre. Welcome to the committee.
Ms Elaine Daviau: Hello. I'm Elaine Daviau. I'm the artistic director of the Beach Arts Centre. We currently moved from church premises in the Beach area of Toronto, St Aidan's church, into a large building owned by Chris Stavro opposite where the racetrack used to be. We're a school that offers dance, music, art, drama and professional-level concerts and shows in an area that is not well supported at this time but currently getting some help from the provincial government. We just received an $8,000 grant, which is very appreciated, from the Ministry of Citizenship, Culture and Recreation.
My concern is the fact that we have to pay $13,000 tax to Mr Stavro, which he pays because he's the owner of the building, but we're a registered charity. My note here covers a lot of charities because I'm not just concerned about my particular charity. I'm concerned about the dissimilarity in treatment of charitable organizations when it comes to realty taxes on premises used for not-for-profit and charitable purposes. There's a serious discrepancy and a lot of us don't understand it. It seems that if you have the right people and power, you can get off taxes.
Currently, if you're a charitable organization and you own your building, you're tax-exempt or have a dispensation of some kind. However, a charity that has to rent space to carry on its work has to pay the tax to the owner, who doesn't get a break, although he gets a break when he does his own personal income tax. The landlord isn't encouraged to pass that small saving he gets in his taxes on to the charity, although some may. We haven't been there long enough to know.
I'm a ballet teacher, so I have to do serious research when I do something like this. The law as I see it doesn't seem to make sense to me. There's not one rule all around for everybody, and the laws that I do know about are not enforced. For instance, I know the Young People's Theatre, which does children's theatre downtown, pays around $70,000 in realty taxes for a year, whereas the National Ballet School, where I was trained, doesn't pay any and basically carries on the same type of work for our area. The National Ballet School has a wonderful board and they really offer a wonderful service to our whole country, but many of us can't reach those levels because we're trying to have fund-raisers to pay our taxes.
There are certain dispensations. The Bata Shoe Museum is tax-exempt because they have what is a considered an exhibition, the same as the Royal Ontario Museum. Other charities don't understand either that they're exempt because they show shoes. We're working with children and paying for children's aid kids to come and take lessons in my school, but I'm trying to raise money to pay this tax.
Some charitable foundations are multimillion-dollar organizations and they do good work, but we are not. There are some organizations that are very small, and I know some of you visit them and you know they're small, but the small charity that rents has to pay tax and the large charity doesn't. It's hard to understand.
We, meaning the cultural industry, offer a very large tax base to Ontario and to our municipalities. We have to have artists to pay, but we also have to pay all the workers who come in to help us, and the volunteer hours, as you know, you can't estimate and put into your assessment for tax because they're free. We would like some assurance that current and planned tax assessments don't erode the cultural industry's very fragile income base.
The giving nature of the work we do doesn't allow for extra money to pay taxes, and donated services are worth money, but they're not money. We are given a lot fewer breaks than several years ago. I put five years ago because that's the time I remember when things were a little healthier in this industry.
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We would like to feel that the charities are given equal treatment, which will help our work, and it could be done through a tax exemption across the board, or a sliding scale would work, depending on how much money the charity is worth. In my view, it would really be like giving a very huge grant into the culture industry without the exchange of a lot of paper and work on your part and on the culture industry's part.
There's a comment I made that I didn't put in my note here: When we pay these taxes, as you were saying earlier, sir, part of the tax goes to the board of education, which is another paid-for institution that's undergoing changes. So we are giving taxes for them, and then they compete with us because sometimes we offer the same services, which isn't a serious problem, but it would be nice if we didn't have to face that as well.
As a government that we have chosen in all ways, although you try to collect taxes in a fair way, we feel that as charities you overlook us. We have noticed that you've lumped some into the business sector and lumped others as charities, so we're not sure where we sit.
We don't have the same amount of money to pay as a commercial business does unless you're a really large charity. The National Ballet School, for instance, gets $3 million from three levels of government. That was about three or four years ago. Their budget is $6 million and mine is about $200,000, and I offer very similar work.
Because we rely heavily on free labour, and I would say that in my particular case, and I speak for many, many charities, 90% of the work in the building I'm in right now is free labour, so there's no income to pay it at all. We're not looking to create a large income base. That's not our function, but we have to be there for everybody, for the people who have nothing and for those who want the service we provide, the wonderful dancers like Jane Danielson, whom I have in my school, and the young boy John Hill, who can't afford lessons but we give them. Although Jane's parents could afford them, John's can't. We can't create a large base with those odds.
The benefits to the community, as you all are very aware, can't be assessed at a monetary level. It's hard also to assess how much good a community is doing by their fruits, but we all know that most charities are honest and have in their mandate a need to provide services without having to consider raising money to pay taxes. We do it strictly to provide for the people, in which case, if we can get a fairer system, the savings that we will incur because we don't have to pay taxes -- and we can be more equitable with those who do and those that don't and everybody can benefit -- will go directly into the community. There won't be a middleman. If I keep my $13,000 next year, I can pay a staff. My cleaning lady is on welfare right now and I give her $20 to come in and help for two half days. I'd love to put her on staff but I can't afford it.
We encourage both the government and those in opposition in this particular case, because it's an issue of all of ours, to eliminate destructive taxes, either through rebates -- so the landlords, if they get a new tenant, will still be charged a tax, but the charity gets it back; then if they have a new tenant, they still would have to be charged the tax -- or a direct grant to the charity or eliminating all taxes for charities or in some way providing that we don't have to do fund-raisers to pay the taxes, and I've quoted you some of the differences.
There are some tiny notes here. My husband works for the Ride for Sight; he's a motorcycle person. The RP Foundation gets hundreds and thousands of dollars every year from the biker community; they contribute as well. How would you deal with that? How would you tax them? The RP Foundation got nothing; the bikers could not find a place to give their money because nobody wanted it. But I know many people who have undergone surgery and who are now better off. Research is now being done because of what they've done.
We have to put our heads together and find a way to preserve this charitable status and not tax it and make me say, "My $8,000 you just gave me, I'm going to have to give it back."
Mr Pouliot: I want to thank you very much, Madame Daviau. I'm honoured to meet a real, live person associated with a fine art, ballet. It's not too long ago that these premises were persona non grata to no less a person than Karen Kain, who was not granted the pleasure of an audience by the minister of the day. It's an opportunity delayed, but I'm honoured.
The $20 -- and I, like you, speak from the heart, candidly -- should not have been mentioned.
Ms Daviau: Why not?
Mr Pouliot: I would ask that it be taken off the record because they'll go after the welfare. The social assistance police --
Ms Daviau: No. She's allowed a certain amount.
Mr Pouliot: It's allowed? Okay.
Mr Daviau: I asked how much it was and I only give her what's allowed.
Mr Pouliot: I wouldn't want her to have the police to go after that.
Ms Daviau: I love that woman; I wouldn't hurt her for anything.
Mr Pouliot: I sympathize with your lot. In business, there are the big businesses, you see -- for instance, in the financial institutions, there are cooperatives, credit unions, caisses populaires, the Royal Bank, the big ones.
In culture you have the Royal Ontario Museum, the club. Then you have the street culture, the Saltimbanco that hasn't quite arrived yet to become the Cirque du Soleil, and during difficult times people whom you represent are the last ones to benefit unless you have a wax museum in Niagara Falls.
During bad times, you're the first ones to suffer. You have an opportunity here. You have well-intended people. Ms Bassett has a reputation for giving the fine arts a priority. She knows people who cater to organizations such as yours or who do parallel work, and you could not have come to a better place this morning to have an opportunity to plead your case. This is a rare opportunity. Not too many people have this. They are the government, they have 82 members and you have Madame Bassett. I have no more questions. I'm just listening intently to what my friend Isabel has to say.
Ms Bassett: I'm going to split my time with Mr Ford, who wants to speak. Thanks for your presentation. I'm delighted to see you here.
It's a question, of course, that we are looking at seriously. I was interested where you said, "The law favours some groups and not others," which is true, "with no perceived system. It applies the current law and how it is enforced." Then you also brought up tenants. That's one area that I had not thought of, because I've been looking at this, in terms of charitable status. Could you just elaborate a little more? How many would there be, I guess I want to ask, in terms of charities that sit in the premises as tenants?
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Ms Daviau: Without calling other directors and finding out all their business -- we've had to be fairly general in any talks I've had with other directors -- I believe that unless you have the money to buy the building, which is a massive fund-raiser, it seems that some organizations like the Young People's Theatre -- I'm not sure they own. If they pay that tax, they must be renting or, for some reason, can't find the loophole to get out of it.
I know the National Ballet School owns their premises. In the private sector, I know a certain private businessman who pays fabulous amounts of money. He's a private businessman and considering turning into a charity so he can get off. I said: "Don't plan on it. We don't even know if you could." There's no real way to know. There's no way to know. I worked in a church before for 20 years and because the church is exempt my rent was reasonable, but again, we had to share with a lot of people.
Mr Phillips: It's unfortunate. Actually, I've been pouring through the background material in the bill and there's very little I can find on your concerns. I can assure you though, on behalf of our party, that we'll look into that by getting the staff in to talk about it. My understanding of the bill is that it actually tightens up the opportunity for charitable support.
Ms Daviau: It depends how you interpret what assessment is.
Mr Phillips: Yes, but I think the intent of the bill is to make it more difficult to get charitable status. I can be corrected by the government, but that's my understanding of the intent of the bill. It talks about taxing non-religious organizations on the basis of -- I probably won't be able to get my hands on it quickly here, but in the government presentation it talks about --
Ms Daviau: It would be interesting to know about the churches because I give money to that too.
Mr Phillips: Residential farm property class would include land owned and occupied by a religious organization, which struck us as odd. It looked to us like the intent of the bill was to tighten up on the charitable donations. I hope we'll get an opportunity when we have the government officials back in to review the charitable donations, but I can assure you we will take a hard look at your --
Ms Daviau: You can call me any time.
Mr Phillips: I appreciate that because actually you're the first presenter who's raised this issue. As I say, this is what they presented to us: The land owned and occupied by a religious organization would be now residential property. I think that's a change from what was there before.
Ms Daviau: We are a family.
Mr Phillips: Yes.
The Chair: Thank you very much and thank you, Ms Daviau, for making your presentation today.
RETAIL TASK FORCE
The Chair: We now welcome the Retail Task Force, Mr Chmara. I believe you have with you Mr Carefoot, Mr Carter and Ms Decarre. Welcome to the standing committee on finance and economic affairs. We have 20 minutes to spend together. If you would like to make a presentation, we will follow up with any questions, if there's time remaining.
Mr Harold Chmara: Thank you, Mr Chairman. We appreciate having the opportunity this morning to make our presentation. I'm Harold Chmara from the Hudson's Bay Company. My colleagues today are members of the Retail Task Force: Dave Carefoot, who works with me at the Hudson's Bay Co; Tim Carter from the Oshawa Group; and Catherine Decarre, representing Dylex.
The Retail Task Force is these three large retailers which represent the broad spectrum of retailing in Canada: Dylex, which operates specialty stores, mostly in malls from coast to coast -- all of us are national companies -- Oshawa Group, which operates large grocery stores and also is a wholesaler to independent franchisers, and Hudson's Bay Co, which operates 400 Zellers and Bay stores across the country.
We feel that retailers are in a unique position vis-à-vis this issue of property taxes because our customers and your constituents are the same people. We're on the front lines. When your constituents feel overtaxed, it shows up in our business immediately. The retailers, as you know, have weathered very tough economic times over the last five or six years, and we are just seeing ourselves in the last year and a half on the cusp of some recovery.
We have previously stated that the personal tax reduction was something we thought would be very positive for our customers and therefore the reduction in personal income taxes would free up discretionary income and that would flow through to retailers in the form of more spending potential or more disposable income for our customers. Renewed consumer confidence is the key to economic renewal and job creation, and therefore the maxim that we would put forth is that there is only, in this area of property tax reform, one taxpayer and shifting taxes from one level of government to another or from one taxpayer to another must be done on the basis that there is not an overall increase in taxes. Indeed, we think consumers are still looking towards further tax decreases going forward. Protection against tax increases is essential to the retail sector and economic growth, and I will explain this in some depth very shortly.
The three issues I wanted to speak on this morning in this time are to explain to you that for the retail sector in particular property taxation is a major business cost and impacts our customers' discretionary income significantly; second, that we need provincial leadership to ensure that property tax reform is more than just a shift of taxes from one pocket to another, or one revenue source or government to another; and last, that we do have a few specifics on the lack of information surrounding the fair municipal tax finance bill, which leads us to conclude that we hope that if these details come forth further in the future we'll have an opportunity to address you again. Some of the specific questions that you might have we can't answer because we don't have those details yet.
Property tax for business is a major issue in Ontario. Indeed, second to Newfoundland, the Canadian Federation of Independent Business has noted that on a per-capita and a per-GDP basis, Ontario imposes the heaviest property taxes. Tax increases have been an important issue with retailers over the last 10 years. Property taxes in shopping centres have increased from approximately 25% of operating costs to 50%.
Take the example of Hudson's Bay Co. In 1996, we paid $113 million in property taxes across Canada. Of that, $58 million was paid in Ontario, which is almost half the total tax burden, and yet our stores in Ontario comprise only 39% of our stores. Since 1989, our consumers' disposal income has stalled and indeed has declined almost 10%; 8.4% is the exact figure. These property taxes typically represent 2% to 4% or even 5% of sales for a retailer.
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I have some information from Statistics Canada; 1994 is the most recent information that they have. Operating profits for retailers -- this is these kind of retailers, general merchants and grocery stores -- the profit margin before interest and before depreciation is an average of 4.9%. As you've seen in the headlines, obviously for some companies it's negative numbers, but on aggregate it's that number. If you think that property taxes represent 4% or 5% of that, that means the property taxes are equal to the pre-tax profits. In other words, it's a very big number in our business.
In order to stay competitive, retailers are very conscious in a competitive industry about not raising taxes, yet obviously, if we don't shift these taxes through to our customers in our prices, we're not going to be in business. We cannot continuously absorb these kind of tax increases and we think that sooner or later this same issue comes up with businesses across the border. We're the first ones that have to deal with it; we're right there on the firing line, if you will, with the consumer, but property taxes to our suppliers and so on through the system eventually cascade through on to the customer.
The issue of rethinking and reducing the property tax burden: We think that this theme has been accepted by all three parties, but as these responsibilities are shifted between the province and to the municipalities, we need to have continuous provincial leadership to ensure that there are not unilateral tax increases on business. As we said, it's a bit of a game to say to residential taxpayers, "Your taxes are staying flat and we're going to put everything on business." Sooner or later, those taxes come back to the customer when they're buying merchandise or when they're dealing with other businesses.
We've spoken to some municipalities and at this point they think our business property taxes could increase by as much as in the range of 9% to 12% once these changes are put through. That kind of increase is going to have a dramatic effect on many retailers. The large companies that you see represented here today may be able to weather this, but as you've seen again, even large companies can't go on indefinitely without earning profits.
Retailers will need to know, as we go forward, the effect of redistributing. We can't really address to you what the effect is going to be on redistributing these municipal responsibilities because the information just isn't there yet. Nevertheless, we fully support this process of reform, and we know that it's difficult. Even though this problem is a difficult issue to deal with, we should continue on with it.
One of the specific areas of concern that we want to deal with is the replacement of the business occupancy tax. We do support the decision to eliminate this. I believe again all parties recognize that there are arbitrary aspects to it. But we still don't know how this issue is going to be dealt with. There seems to be a revenue amount that's going to be shifted from the business occupancy tax to the realty taxes.
That needs to be monitored by the provincial government, we think, and addressed, because otherwise you're going to find some businesses with massive increases in taxes and others getting massive decreases. It seems logical for a phase-in to be taking place. This transition is easier for people whose taxes are going up to be phased in over a period of time, and probably that's the only kind of solution that's going to work.
The class definitions, ranges and ratios: The specific definition of commercial property really doesn't give us much further guidance. I believe that on Monday a definition was released which says "land that is not included in any other property class," but that really doesn't assist us in getting any confidence that we have a handle on what our property tax changes are going to be.
A preliminary interpretation of Bill 106 indicates that the purpose of the ranges and ratios is to ensure a fair distribution of the tax burden among property taxes. This is better than the system in British Columbia, which we're familiar with and which also uses AVA which we are comfortable with. But again, as these ranges and ratios have yet to be determined, we still have a great deal of uncertainty as to what effect this is going to have on our taxes.
The next issue I want to touch on is small business concessions, and we have to say this: We're not small businesses. However, we compete with small businesses and it's very difficult to us to understand if a pair of jeans is being sold in a Bay store or in a Dylex store or in a standalone, street-front Main Street store, we all have to be selling those jeans for the same price because we're all competing for the same consumer's dollar, and they're not going to be prepared to pay $5 more at our store just because we have higher property taxes.
While it's admirable that business be supported, we're very conscious, we're very concerned that you don't build something in that gives arbitrary classes of so-called small businesses an advantage. I mean, Dylex could say their stores are small because they're 6,000 square feet and ours are 100,000 square feet, but in fact probably you're going to say, "Well, at Dylex you have sales of $1 billion. You're not a small business." But they're across the street from a store that's exactly the same size that's owned by a single owner-operator, and is it really appropriate that they be getting a tax break?
In conclusion, as I say, we still are in favour of property tax reform. I know this is a complicated issue, but we don't run away from a problem because it's complicated; we do have to solve this and we do have to work it through. We applaud the repeal of the business occupancy tax and we continue to look for provincial leadership to keep pressure on municipalities as we move through the process.
The last point I was going to make was to suggest that in terms of dealing with the provinces, you don't want to start erecting and you cannot erect a massive set of legislation to monitor or force municipalities in how they're going to be dealing with this transition of reallocating and readjusting taxes among businesses or between residential and businesses. But it may be that the experience of introducing the federal GST back in 1990, where you had an information source, a kind of database of what is happening in the municipality, that you probably have that information readily at hand and you could make that information available through the Internet or in some published form so that individuals and businesses in these various municipalities could be kept abreast of how their municipality is dealing with this issue compared to other municipalities.
Thank you again for the time, and we're prepared to address any questions.
The Chair: We have about two minutes for each caucus to ask questions. We'll start with the government caucus.
Mr Douglas B. Ford (Etobicoke-Humber): Yes, gentlemen. I'd like you to listen to a little statement here so that we get a clearer understanding:
"The elimination of business occupancy tax will save significant administrative costs and allow municipalities to pass on savings of the $200 million that is currently lost because the BOT is so difficult to collect.
"We have listened to the concerns of businesses that the BOT is unfair and discriminatory and needs to be eliminated.
"Municipalities will have the local option to decide whether they want to recover the revenue from the BOT. They can use administrative savings to reduce the amount to be recovered, allowing for an overall tax decrease, they can choose to recover revenues from the business classes that paid the BOT or can recoup some of the revenue from other classes, provided that it does not unfairly increase tax differences between classes."
What I'm trying to say is that these various municipalities where your stores are located do not want to overburden these areas because they want the location at that particular site. So they're trying to reduce the taxes on this, and this is what we're trying to do. Do you want to make a comment on that?
Mr David Carefoot: We do support the elimination of the business occupancy tax. I appreciate what you're saying is that municipalities would want to support keeping those stores within the municipality, but that's an unknown factor right now. I've been involved in assessment and taxation issues for probably 30 years and travelled across Canada, and I've seen how some municipalities react to those specific situations. It's an unknown fact now. We don't know what they're going to do, although we appreciate your comment that they would want to keep us within the municipality.
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Mr Ford: I agree with what you're saying but there are always in the business area that you're talking about unknown factors. I think they're negotiable from the point of view on both sides there. I think it's very negotiable.
Mr Carefoot: We agree. As long as the total tax that's generated by the elimination of business occupancy tax -- obviously it has to be collected from someone else -- isn't an unfair burden or a higher burden on us as major commercial tenants within the market, we accept that principle. We hope that's the direction it will go when it comes down to residential sectors, where the voters are, versus commercial. We've seen, for example, in British Columbia that the effective tax rate between commercial and residential is about a five-to-one ratio of commercial to residential, so that's where our concerns are. We appreciate that there have been limits set. We just don't know what that bottom line is going to be yet. We need more information to come to final conclusions.
Mr Phillips: I think you said it all there. We all need more information to come to a conclusion. This is not happening by accident. The government knows if people find out what's going to happen they get angry, so the book on this thing is to pass the bill, with as little information available as absolutely possible, get it done in two weeks. I'm from a business background, as Tim knows, and we're being asked to sign a contract, but they won't let us in to look at the building. We've got to buy this thing without due diligence, and you're one of many groups that have said that. I'm paraphrasing what you said about information, but --
Mr Chmara: Yes. I wouldn't want you to let us think that we've said that we're not in favour of moving this ahead, Mr Phillips.
Mr Phillips: No. Everybody in Ontario is in favour of property tax reform. Everybody says, or most people, "I applaud the courage of the government in moving forward," but I don't know where they're taking us.
Mr Chmara: All of us, not just the government.
Mr Phillips: That's the problem here. There's a fine line between being courageous and being reckless, and we're concerned this is reckless for this reason. You have now said, "Don't put in another class of commercial," and virtually every business organization has said to us, "Don't allow that." If that doesn't happen, small business does pick up a disproportionate share of the business occupancy tax, so the government right now has got it both ways. They're saying, "Don't worry, we're going to do that for small business." You're coming here saying you're supporting the bill on the assumption, I gather, that it won't be two classes of commercial, but we don't know that. I'm repeating myself, but we're being asked to sign a contract without knowledge of what's in it. Could you just go over once again your concerns about two classes of commercial tax definitions?
Mr Tim Carter: Just before he does that, can I comment on what you said before? The Ontario market is savage. It's overstored. We don't have any allowance to pick up a transition as we move through to a finer order. When you remove a system and introduce another one, there will be dislocation around the place. We have a lot of stores, not in our own company, but we see them all over the place from Eaton's on through, where things are very tight, and what we don't want is for a major shift to happen for the business occupancy tax to be removed, the property tax to eat up all that difference and then to move on from that point.
If it continues to move on, we have a lot of small grocers in our operation -- you add AVA downtown with it, and maybe their taxes are going to pick up on top of it -- and we think it could be disruptive. That's why Harold was mentioning that we would like the province to have a monitoring function as well, not just put it through, because we buy the principles of it, but we're just hoping they don't just put it through and then step back.
Mr Pouliot: Thank you very much. I have maybe a new concept in a broad summarized form where the uncollected portion of the BOT, the business occupancy tax, would be sold to one or many vulture funds that we could get 55, 60, 65 cents on the dollar.
You have a dilemma. Some say you're overretailed. We have looked at the sheet, some of us have, of some of your friends and competitors: a lot of transition. Things have changed at the marketplace, the arrival of Wal-Mart among others, a different perception and concept of what the mart is, and the large general store, we have seen Eaton's, and we followed your dilemma of Dylex for a time. It seems that no one is immune.
You get a break. The business occupancy tax, which by all accounts is flawed, hard to collect, is being removed. You're a winner, except that you need assurance. You're seeking assurance that the municipalities, which are well intended, but because they are under such pressure, some will wish to make up the lost revenue, a normal reaction. They have a choice between a new wrinkle, go to the residential levy, and there are more of them than there are of you, or spread it across in the commercial, if you wish. I call you industrial. You're not. You're commercial, but you're big commercial. They get it in the neck.
There are no secrets here. There are only so many toppings that make up the pizza. What you lose here you must pick up there. Some people will speak of efficiencies, and it's true you can always bargain or, "You tighten up your belt." "It looks better on you than on me" kind of thing. But those are filled with limitations. You can only eliminate some. It has already been done to a large extent, so it stays the same. What is your focus? You will get the benefit of the business occupancy tax, but they will come after you, don't you think?
Mr Chmara: We certainly don't expect a windfall from this to happen, and I guess it isn't articulated specifically in our submission. But we do expect that the quantum of tax being raised through the business occupancy tax will continue to be raised and that the commercial taxpayers will pick up perhaps all of it, but then you're going to have a difficult transition there, because different classes of commercial people are getting different breaks now or they're getting different rates.
You said that most of the cost savings are there. From a business perspective, I don't think you save costs unless the pressure stays on and on and on. You have to be really creative at how to do this, and cooperative. We hope that certain municipalities, depending upon their own balance between what they think the residential taxpayers will accept, for example, in some communities -- you just heard from Brampton. They seemed to imply that they are prepared to be quite accommodating to certain business classes, and perhaps their residential taxpayers would agree with that. Other municipalities may be going the other way, and there will be a balance. But you may be able to facilitate this issue of monitoring by having the database that people can use to see what's happening in these communities.
The Chair: Gentlemen, we thank you very much for appearing before the committee today, and we appreciate your input.
There being no further business this morning, this committee stands in recess until 2 o'clock this afternoon.
The committee recessed from 1219 to 1359.
DAN LECKIE
The Chair: We'll call the meeting back to order. We have with us Councillor Dan Leckie from ward 4, city of Toronto.
Mr Dan Leckie: Ward 5. This is ward 5. Welcome.
The Chair: We have 20 minutes to spend together.
Mr Leckie: I may not use up the full amount of time.
The Chair: We'll use it up with questions if you don't.
Mr Leckie: I'm here basically just to speak to the underlying principle of the bill and to express my opposition to it and represent my neighbourhoods.
The principle of market value assessment, even though you've termed it differently in this particular piece of legislation, is still one that would do quite significant damage to fairly sensitive downtown neighbourhoods. We've managed to keep stable mixed-use housing in the downtown core of the city of Toronto, unlike almost any other city in North America, and there are obvious reasons for that. I want to assert that the history of property taxation is one of the factors. I know there are many.
The kind of neighbourhoods I represent are neighbourhoods like the Sussex-Ulster area, Kensington market, which you all might either know of or have heard of, the Alexandra Park community, that basically Chinese population in the Grange neighbourhood.
I want to say that it's not just the quick hit of the implementation of reassessment and the imposition of MVA on these neighbourhoods that will cause dislocation. It's also the long-term speculative nature of this concept that puts pressure on neighbourhoods to convert their uses from ones which have a low market return to ones that have a higher market return. Those forces can overcome what we might want to do to try to say what kind of city we want to live in, where we would say that we want healthy, strong downtown neighbourhoods as one of the planning visions of our city plan. Most communities in Ontario try to do that.
The difficulty with just market value assessment as it works, especially in highly volatile markets, is it allows speculative forces to be used to drive up the cost of housing or small business in such a way that it becomes the imperative to sell, and to sell to forces that want to rezone or reuse that property in a way that disrupts the neighbourhoods.
We had some very clear examples of this kind of pressure during the development investment speculation in the late 1970s and the 1980s. Places like the city and the province worked very hard to put legislation together that would prevent those speculative forces from taking people's housing away or destroying their small businesses.
The difficulty with the bill as you've structured it, despite the fact that I think alternatives were available, is that you're going to allow the full forces of that speculative pressure to do the planning for you. Rather than a community being able to decide what kind of city they want to live in, the market forces will act unheeded over time -- I grant you that; it will take some time -- in such a way as to overcome community goals and to force out those particular uses. This makes blockbusting a matter of fact, if you know the term from the development industry, and it makes it very difficult to retain control of those neighbourhoods, and they're very sensitive neighbourhoods. That's the fundamental basis of my opposition. It's the impact on small retail, the impact on healthy downtown neighbourhoods.
I did want to give you an example of two things, one a historical example of an alternative approach, but also to just mention an alternative altogether.
The historical example is a bit of a funny one because it's a North American quirk. In 1919, the city of Toronto enacted a bylaw that established something called partial graded exemption, which you may or may not have heard of. It was a tax relief measure that was meant to assist returning veterans and their families and basically working-class people in the city to keep their homes during a period of time when there was high speculation on property values that occurred between the end of the war and the end of the Depression. Partial graded exemption basically allowed a writedown of about 50%. It was on a scaled basis, based on the size of the home and the size of the frontage of the home, to determine a reduction in the assessment value that the mill rate was to be levied against.
It applied to basically about 5,000 homes initially and its effect was quite staggering if you compare the results in Toronto to the results that occurred in other North American cities. At the time, the correlation between how much your property taxes were worth and how much your house was worth was about a 1-to-10 ratio: A house was worth between $4,000 and $7,000 and your property taxes were in the $400 to $500 range per year. This allowed a decrease of 50% for those particular communities that applied in the bill. But the outcome of it was staggering. When the Depression came along and family incomes dropped phenomenally, the value of the property dropped but the cost of the taxes didn't. Property values -- $7,000 was a house on Wellesley or Harbord at the time -- dropped right through the roof, down to $3,000 or $4,000, what you could get by selling your home, but the taxes stayed basically the same.
In most North American cities when this occurred what happened was that the homeowners, the vets and the immigrant families of the time, were forced out of that kind of housing and that housing was brought together into huge parcels owned by one person. That's basically how cities like Boston, Detroit, Chicago and New York got their tenements. They got these large blocks of apartments that were owned at that period by single investors who were able to gobble up huge numbers of houses because there was no tax relief and houses were going for a dime a dozen on the tax relief rolls once 1929 hit.
Toronto was saved from that, but it's an example of trying to have social and economic planning play a role in the market. Not an exclusive role, because obviously it wasn't meant to be operating all by itself, you still had a form of assessing property that was based somewhat on market forces, but it was a relief that allowed you to have planning objectives that kept downtown neighbourhoods as residential and small business neighbourhoods rather than the blockbusting and land accumulation and the tenement construction that went on in many other North American cities.
If you look at the history of taxation and property values in those other North American cities, you find that there have been enormous blips of high speculative investment pressures which changed the use. I know there are other social factors at work here, it's not just land value and property value, but you recognize how those cities end up with huge vacant holes in them of no property value, basically very dangerous places to live or just no-value places to live, holes in the centre of the city. Those cities still suffer from that and they've never been able to do very much about it.
But you've got to be proud of your own cities in Ontario. Because we've had more economic planning and much more tax flexibility, we've been able to avoid those kinds of, whatever you want to call them, slums, holes, vacant areas. I know there were other factors at work. It's not just taxation, there are major social factors at work, but this is certainly part of the formula. The example I gave of partial graded exemption and how it worked out was a significant factor in this. Partial graded exemption was only withdrawn in the last 15 or 20 years. The nature of what families lived in those places has changed as well.
One of the very interesting aspects of this, by the way, that gave Toronto a great deal of efficiency as a city is that having those working-class neighbourhoods near the industrial jobs in the city -- the garment factories, the steel factories, Massey-Ferguson kinds of places -- meant that you had high efficiency in your transit system, your water systems. That made the city work even better, whereas in the States you had those populations being driven away from the jobs and it caused that much more dislocation. When they built their infrastructure, their costs per unit were much higher than in the city of Toronto. We've always had a very efficient infrastructure construction and therefore we've never had the high property taxes.
In fact, market value assessment generally encourages more greenfield development than brownfield development by its very structure, and that means a less efficient, both environmentally and economically, kind of planning and development.
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I just wanted to remind you that there are some historical reasons why things like market value assessment were influenced by planning and economic decisions by local councils that influence how the tax structure worked.
I want to say that there are alternatives and I know the city has official positions, but just as I close, I want to remind you that one that you were presented with, one that even the government party said it would explore before implementing market value assessment, was the unit value structure which has been implemented in other parts of the world. It's basically a lot more sensitive to current uses, so it's not very sensitive to speculative users. It's sensitive to size, which also helps deal with your fairness.
I don't know how we can claim it's fair for a 2,500-square-foot house or even larger, with a huge backyard in the suburbs will end up being taxed at the same rate as a 1,000-square-foot unit in the downtown core which doesn't have access to a large backyard, doesn't have free parking, doesn't have all kinds of other amenities. I know there are advantages to living in the inner city, but there's a fair-fair here. It's not just a question of paying the same taxes based on what your sale price of your property is worth. There's a use value to your property and there's a fairness that's associated with what amenities come with the ownership of the property.
Everyone here would agree that it would be better to have a 2,500- or 3,500-square-foot house with a great big backyard and vines and trees and free parking and a big front yard as well and great services to a smaller downtown unit. But what you're going to do is you're going to change the fundamental dimensions of this by taxing a much smaller unit, with much less costs for society in terms of infrastructure and services provisions, at the same rate. So this claim about fairness has to be looked at from a use value perspective as well as from a sale value perspective.
I just wanted to outline those general comments. I think it's a mistake to have gone simplistically ahead with recommending something that people have complained about and claimed wouldn't work. New jurisdictions that are taking this on elsewhere in the world are not using such a simplistic market value with its volatility and its unfairness and its impact on market forces and community planning approach at all. They're being more sophisticated. They're looking harder.
You didn't take the recommendations of either the Fair Tax Commission or the work that Golden and Crombie were doing. I'm not sure why, but I do think it's a mistake. So I'll end there.
The Chair: Thank you very much. We've got about two and a half minutes per caucus for questions.
Mr Phillips: Mr Leckie knows his subject very well; I know from experience.
Mr Leckie: You haven't worked on it since the days you and I were on the school boards in Metro in the 1970s. That's when I worked most on this issue.
Mr Pouliot: That was in the 1980s.
Mr Leckie: Oh, no. He was involved in the 1970s.
Mr Phillips: Don't blow my cover here.
Mr Leckie: You and I were on a finance committee of the Metro school board.
Mr Phillips: Yes, we were.
Mr Leckie: And this issue was hot then.
Mr Phillips: Here's the situation as we see it: Everybody agrees there's a need for property tax reform.
Mr Leckie: Yes, especially reassessment.
Mr Phillips: So the government says there has to be reform. We say yes. But here's the problem we run into: We've got this bill. We've got two weeks of hearings. We can get no impact studies. We have no idea -- we can surmise. We use our own numbers. We say small business taxes are going to go up 10% and the big operators are going to get about a 19% tax break. That's what we think, but the government won't give us any numbers.
People say, "They've got the courage to go ahead." Yes, they're acting, but in our opinion this may be extremely reckless. Every group that's come before us has expressed concern about not knowing what this means, but we've got the gun to our heads because there must be change and it's, "Take it or leave it." We have to sign this contract without knowing what the implications are.
My question to you is, has the city of Toronto been able to get some impact studies from the province so that you can give us some indication of what the impact will be? They may go ahead anyway, but just so we know what it's going to mean when it does happen a year from now.
Mr Leckie: The fundamental answer is no, we have not been able to, despite freedom of information attempts to get impact studies that we know are available.
Mr Phillips: Why do you think they're denying you that information?
Mr Leckie: We all know, and you've said it, there is an enormous short-term impact -- and I've also been pointing out there's a long-term impact -- of going to MVA and it can be horrendous for properties which can't afford the adjustment.
Mr Pouliot: Mr Leckie, it's a pleasure to meet you indeed. Ward 5 is right in the heart of the city of Toronto, what the government would refer to as right in the heart of area code 416. If I were in your shoes, sir, I would be hard-pressed not to feel targeted or victimized. When all is said and done, the one urban area that will be impacted the most, and it's not a secret to anyone, is the great city of Toronto. You're about to be assessed and reassessed. That alone will present you with a lot of pressure. You're about to take on additional responsibilities. You're about to be used on the education portion, yes, to benefit others, but nevertheless in this case you will be the victim.
Real-estate-wise, and you live here, if I were a prospective buyer and I wished to live in the city of Toronto, I don't know if I should laugh or cry, rejoice or be saddened. Location, interest rates, price, taxes are all important components that have to be factored in before there is a choice. Maybe it would be time to have a second look and say, what about the proportion, what about the tax burden, which is sure to happen? This is on an annual basis that I'm going to have to pay for all this.
How do you see, in a broadly summarized phrase or two, the future of your city, knowing what you know but unfortunately not knowing what we should know?
Mr Leckie: The biggest problem here is that the downtown communities, the city itself is losing control of its own destiny as a result of this kind of legislation. This is one piece of five or six pieces of legislation that take that control away and that I think jeopardize its long-term health and viability both economically and in every sense of the word. It's a very scary prospect. I honestly, at root, don't understand why the government didn't look carefully at the advice it had been given and come up with a wiser and more sensitive -- this seems bullish and simplistic.
Mr Pouliot: There's a lot on the plate at the same time, isn't there?
Mr Leckie: Absolutely.
Ms Bassett: I have two quick questions. One, just for the record, do you think the current system of assessment is fair?
Mr Leckie: Definitely not. There are inequities in the present system and there have been attempts to figure out what they are and address them.
Ms Bassett: The next thing: You mentioned that MVA and AVA were more or less the same. Anne Golden, whom I see all the time, by the way, did recommend AVA strongly. She never stopped --
Mr Leckie: Yes. She had some qualifications on it that we could get into if you want to get into detail.
Ms Bassett: Maybe later, but I wanted to point out that under our system AVA is quite different in terms of assessment differences and in tax differences. Under our system we're going to update annually as opposed to every four years. It's based on a three-year rolling average so we'll miss the peaks and valleys in real estate markets that maybe you would talk about.
In terms of tax differences, and you as a municipal politician I'm sure will understand this, we have handed over to municipalities the tools in order to cushion blows and to shape the form of assessment they really want so they can help elderly people, they can help the disabled to maintain the type of house they want. They can bring in a two-tier tax system so that small businesses will not suffer the same tax --
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Mr Phillips: They can't do that.
Ms Bassett: -- as bigger businesses would.
Mr Leckie: But you have to know, in the bill itself, there are a lot fewer powers than we had historically. First of all, you're not allowing us to make transitions between classes. That's a very severe restriction. If you want planning flexibility and use flexibility, you've got to be able to make those transitions. Second of all, the three-year rolling average doesn't begin until 2006. The impacts will already be hard felt in terms of the short range because there's been such a lull in getting assessments up to some kind of equitable basis.
Ms Bassett: Do you think, as a municipal politician, that you will allow the eight-year transition period, that you will be sensitive to the needs of your constituents?
Mr Leckie: Obviously we're going to do everything we can, if this bill passes, to make it work. We're not going to try --
Ms Bassett: But in that area. I'd love an answer.
Mr Leckie: I'm just trying to say to you that over time the powers you give us -- what I was trying to say in my remarks was that there are planning alternatives and there are tax structural alternatives you could have used that would have given both more flexibility to be sensitive to the seniors or the small businesses, and more fairness, not only between classes but within classes, and you've not done those.
The Chair: Thank you, Ms Bassett. I appreciate that we can't debate the entire bill in the short period of time we have. Thank you very much, Mr Leckie, for joining us today and making this presentation.
Mr Phillips: Mr Chair, on a point of order: The parliamentary assistant said that the bill allows two classes of commercial. We'd been told that the bill does not allow that, so I'd like clarification on that.
Second, the parliamentary assistant said that this is AVA, actual value assessment, when the briefing said it's current value assessment. I'd like to know whether the briefing was right or whether the parliamentary assistant is right.
Ms Bassett: I missed that.
Mr Phillips: In your remarks you just indicated that the bill permits two classes of commercial.
Ms Bassett: No. It does not. I'm sorry, I misquoted. I meant to say that municipalities will have the option to introduce a two-tier tax structure with a lower tax rate for small business.
Mr Phillips: Not according to this bill, they will not. This bill does not permit that.
Ms Bassett: They will have the option.
Mr Phillips: No, this bill does not permit that.
Ms Bassett: We'll have to clarify that.
The Chair: Could you provide us with clarification on that?
Mr Phillips: The minister has indicated he's bringing in companion legislation later, but I don't think the bill permits that. Second, we've been told by the ministry that this is not actual value assessment but it's current value assessment.
Ms Bassett: Current value assessment, right.
Mr Phillips: You said "AVA."
Ms Bassett: I should say "current." I got caught up. I meant current value assessment.
The Chair: Could you provide some clarification to the committee on the commercial?
Ms Bassett: I will.
The Chair: Thank you very much.
CANADIAN INSTITUTE OF PUBLIC REAL ESTATE COMPANIES
The Chair: We now welcome the Canadian Institute of Public Real Estate Companies, Mr Daniel and Mr Stewart. Welcome to the committee, sir.
Mr Ron Daniel: Thank you. My name is Ron Daniel. I'm the executive director of CIPREC. Briefly, CIPREC's members endorse firmly the direction of Bill 106. We have some transitional concerns that I'll discuss later. With me today is David Stewart, who is the director of taxation for Cambridge Shopping Centres Ltd.
The Canadian Institute of Public Real Estate Companies is comprised of member firms that include most of Canada's large real estate investment and development companies whose shares are publicly traded, plus real estate subsidiaries of public companies, large privately owned real estate development companies, trust companies, insurance companies, pension funds and all the major banks.
As a background to our comments I'd like to give you an overview of what CIPREC's concern is with respect to the escalation of property taxes over the last 10 years or more. CIPREC members pay a significant amount of taxes in Canada and in Ontario. Total property and property-related taxes in Canada paid in 1995 exceeded $1 billion by CIPREC members, and there are approximately 30 members, in Ontario over $600 million, 80% of that in Metropolitan Toronto.
Despite the past severe recession leading to dramatically lower rents and higher vacancies between the six-year period from 1989 to 1994, CIPREC's annual tax survey shows that taxes per square foot in Metro Toronto rose by 79%, while during the same period inflation only rose 21%. At the same time that taxes have soared, municipal services such as garbage collection and snow removal have been withdrawn from commercial and industrial property, and property owners pay private sector contractors for these services with no reduction in municipal taxes.
CIPREC believes that property and property-related taxes are too high and are having a negative impact on Ontario's and Metro Toronto's competitive position and the ability to attract new investment and create new jobs. While that's not directly related to Bill 106, we believe that is a fundamental position we wanted to put on the record.
CIPREC firmly supports the government's initiatives included in Bill 103, an act to amalgamate the municipalities of Metropolitan Toronto, and Bill 104, an act to reform the Ontario education system. CIPREC views all three bills as integral reforms to achieve more equality and fairness across all aspects of municipal governance, including property taxes, education programs and systems, and the cost-effective delivery of municipal services. We view all three as being interrelated and important new steps forward.
I'd like to comment next on Bill 106, the Ontario Fair Municipal Finance Act. CIPREC has long supported the much-needed reform to Ontario's property tax systems and firmly supports the government's initiatives to bring equity and fairness to the property tax assessment systems.
In 1995 CIPREC, in response to growing concern over the spiralling costs of property taxes, undertook a major study of property tax systems in Canada, with particular emphasis in Ontario and Metropolitan Toronto because that's where the largest portions of the members' investments in real estate are. The work was titled Towards A Strategy for Property Tax Reduction: An Opportunity for Action.
Briefly, the study found that the property tax is regressive; inefficient in allocating scarce resources; negatively impacts competitiveness; and is insensitive to corporate health. By that I mean that your taxes are based on the value of the land and not on what the business is producing at any time.
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Several recent studies have condemned the present system, including, in its totality, systems of property tax, particularly in Ontario. This includes most comments in the fair tax report for Ontario and the Golden commission. Suggested reforms include equal assessment criteria; removal of unjust weightings; greater use of fees for services; and social costs to be funded by other, broader-based taxes.
Property tax is Canada's second-largest source of income after income tax. Removing education alone from the Ontario tax system will require cost savings plus new revenues of about $8.3 billion in Ontario. That was the prime recommendation of our study, that education be taken completely off property, but we recognized the difficulty of the size of the money to be replaced with new revenue. We looked at cost reductions; reform of existing sales taxes; a carbon tax; local income tax surcharges; and hospitality, gaming, and entertainment taxes.
We never expected that the education component of property tax could be taken off immediately. We are somewhat disappointed that it's been taken off the residential tax first, but we believe future reforms will bring us to look again at the education component of taxes and its burden on commercial property. We will continue to lobby for funding of education by alternative sources of revenue.
However, at the moment we are concerned too with the implementation of a new property assessment system. It's a major undertaking; it will require vast resources and considerable time. We urge the government to examine critically the adequate provision of human and fiscal resources in order to ensure a successful and timely implementation of the new system. Given the time constraints, we believe that should be a major effort by the government.
In reviewing the legislation, we note that the government plans to protect seniors and the disabled, and to phase in the system. In earlier debates in Metropolitan Toronto on market value assessment, we argued that the new assessment system must be phased in over five to 10 years, since what took 40 years to screw up -- if you'll pardon the language -- must be phased in over five to 10 years. CIPREC asks that the government ensure that an appropriate phase-in period is provided.
Moving on to our concerns with the legislation: The Fair Municipal Finance Act contains a number of changes to the existing system that will have a significant negative impact on commercial and industrial property.
While we don't disagree with the elimination of the business occupancy tax, that step does have very strong implications for commercial and industrial property owners. Presently, the business occupancy tax is paid directly by the tenant and is a lien against the business if he fails to pay. The proposed elimination of occupancy taxes makes the owner, the landlord, responsible for the increase in property taxes.
The following are some of the things our industry believes should be treated as transitional; that is, we need the government's assurance that prior to the new system being implemented, minor changes will be made to correct or adjust for inequities that would otherwise occur.
At present, no business occupancy tax is paid on vacant space. However, Bill 106, with the elimination of the occupancy tax and the planned increase in property taxes, will make the landlord or owner responsible for the total property taxes. We've prepared a couple of schedules, which are attached to our brief, that show the impact on a shopping centre with about 25% vacant space, and an industrial property with about 50% vacant space. You'll see that there's a 45% increase in the tax liability on the shopping centre, and a 50% increase in the industrial model. The reason is that we're now going to have to face the increased burden of approximately 45% of property taxes.
These matters have been resolved in other jurisdictions that have eliminated the business occupancy tax, specifically New Brunswick and Quebec, where they have developed an alternative solution: They would allow for the rebate of the previous business tax on space that is vacant or became vacant for 60 days. Another alternative solution would be to classify vacant space in a separate category and not have the additional new property tax burden placed on it.
Vacant land also presents problems for us. If it does not have commercial activity, vacant land should not be subjected to the proposed increased tax as a result of the elimination of the business tax. Again, Quebec has introduced this amendment when they eliminated business taxes.
I think peculiar to the development industry are the terms long-term gross and semigross leases. These are leases that generally are negotiated with anchor tenants for long terms, up to 30 years, with renewals going as far out as 50 years. These leases cannot be opened, and since the anchor tenant is now paying the business occupancy tax, it will become the responsibility of the landlord. Without some legislative change, he will not have the ability to pass it through to the tenant. But again in Quebec and New Brunswick, legislation was passed to adjust for that.
We have arranged over the last few years to negotiate with the Ministry of Municipal Affairs and the Ministry of Finance a solution to a very serious problem: specifically, 32 shopping centres in and around Toronto and affecting others across the province, about a change in their method of assessment to market value from what are historical construction costs. It's a very complicated matter. I won't go into it any further than to say that we would like to continue these discussions to make sure that the arrangements for apportionment that have been created for taxation be continued.
CIPREC supports the Ontario fair municipal tax act, Bill 106, as an integral part of a much-needed reform of the provincial education system, municipal governance and fiscal reform provided for in Bills 103 and 104. We also recognize the need for transitional changes to enable all the elements of the new system to come into play without causing severe difficulties for any group or industry.
Earlier in this brief we made reference to our study, Towards a Strategy for Property Tax Reduction, a key element of which was the removal of the education component of property tax from commercial and industrial property taxes. We were disappointed that the government at this time removed the education tax from residential property and not from the commercial and industrial property. However, the issue remains and will return.
The supporters of further tax reform are growing. We were heartened by the following statement from the Ontario Federation of Agriculture: "People should pay people taxes, education, water and sewer services etc, and property should pay for property services, roads and snow removal."
In CIPREC's opinion, the above statement captures the philosophy that should be the underpinning of continuing property tax reform for the future.
The Chair: Thank you very much. That leaves about one minute per caucus.
Mr Pouliot: Mr Daniel, welcome, and thank you most kindly. I'm very interested in your brief. You readily acquiesce that there's a saturation at the property tax level, that people should pay less. In the same vein, you support Bills -- well, you didn't include 98, where there's a switch from developers to municipalities -- 103, 104, 106. So you support the government. That's okay.
You've got to help me with the following mathematics in terms of taxation. Let's keep in mind one term of office. This is what they will intend to do: An $11-billion deficit will be reconciled in the first term. Add to it $5.4 billion in terms of personal income tax. We're at over $16 billion. They've committed not to decrease one penny from health; that's the big ticket. It's the same thing for education because they will protect teaching in the classroom, and that's where 85% of the salaries and fringes are.
It leaves few alternatives. How do you reconcile, because you won't get it on the revenue side, a commanding $16.5 billion or $16.6 billion of new money -- and savings have to be found -- some tax breaks for the banks under Bill 106, and for the large industrial sector, and no increase at the residential level?
My mathematics do not give me the flexibility to say that this can all be done, because I don't believe there is $16 billion of new revenue in the next three years. Do you?
Mr Daniel: I have to accept your statement. I haven't looked at the problem in that way. We're looking at it strictly from the standpoint of --
Mr Pouliot: Bill by bill. Okay. Thank you.
Mr Rollins: Thanks, gentlemen, for your presentation. Do you feel that the business occupancy tax, if it's vacant and there's nobody in that business, has to be considered removed from the equation?
Mr Daniel: It's going to be a very significant on top of the tax burden we're already carrying.
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Mr Rollins: How do you see it if, as a government, we implement the tax structure the way it is proposed, that there isn't that business tax there and much of that will be transferred back on to that business? We know most cities aren't going to be able to just forget about that million dollars or so they're bringing in; they're going to have to readjust this going back on to the commercial property, and that is vacant. How are you going adjust that to be able to handle that?
Mr David Stewart: I want to be clear. How we would adjust it or --
Mr Rollins: How can you adjust it? There's only one tax bill now; there's only going to be one property tax.
Mr Stewart: What we would like to see is a proportional return to the owner for the increase in the realty tax burden once the business tax is abolished. Our example suggests that for every dollar now being charged as realty taxes, that amount will have to be increased by about 45% to absorb the lost business tax. Now you are shifting that on to the owner of the property when there's a vacancy. Our amendment would assume that there would be a recovery of that, on an annual basis, to the extent that your property is vacant, so if you had a 10% vacancy you should be entitled to 10% of your tax bill back, but only for that 45% increase. Otherwise, there will be a non-recovery and it would lead to a devaluation of the properties.
If you look at example A, we have an increase in the shortfall of $90,535. The reason I have capitalized this at 8% is to give you some idea of the automatic devaluation that's going to happen to that property. When you take a look at these kinds of properties across the province, we could be looking at tens and hundreds of millions of dollars of devaluation of people's properties by shifting a tax burden on to a party that doesn't have a recovery ability. Depending on the nature of the building and the amount of vacancy, it'll be even more devastating.
Mr Phillips: I was struck by your comment, "The supporters of further tax reform are growing heartened that people should pay people taxes, education, water and sewer, and that property should pay for property services." You must have really been shocked when the province decided to put social assistance, child care, seniors housing, seniors assistance and long-term care on to property tax. That must have disheartened you a little bit.
Mr Daniel: It caused us some concern, yes.
Mr Phillips: I would think it would, that it might have taken the heart right out of you.
My question is about the business occupancy tax. Our problem is that we've got two weeks on this bill; we are given no information about its impact. We're told, "If you don't pass this bill, you're holding up property tax reform in the province. We've got to get on with it, because everybody knows there should be property tax reform, and it's you who are going to hold it up."
But you pointed out the tremendous implications. We did a calculation on a bank tower that suggests that its property taxes could drop by $3 million to $5 million. If you take what that does to the value, that's a $40-million improvement on the value of that property. That's what we're doing here. We're taking an antiquated tax, the business occupancy tax -- it's from 1904 and everybody says it's got to be changed -- and we're moving to one that I don't think we've even -- the government has refused to give us the impact of that. What is this really going to mean in real terms?
I'm sorry that I'm giving you almost a statement and not a question, because you've raised legitimate questions that we definitely need answers on. But can you give us perhaps a couple of real-life examples of what this might mean for various businesses? Who might benefit in terms of --
Mr Daniel: The occupancy tax, you mean?
Mr Phillips: Yes, the business occupancy tax.
Mr Stewart: Our schedule is based on a 45% average; people have spoken about a 40% and a 50%, so we took 45%. Anybody who is presently taxed at a higher rate than that would be beneficiaries. Obviously, with professionals now at 50%, manufacturers at 60%, financial institutions at 75%, all those will go down by different proportions so they will be the beneficiaries. A lot of the smaller ones, the independents at 30%, by our calculations are going to have a 50% increase.
Those are the winners or losers within that. We're saying there are also the owners who are now being asked to absorb the other part of the missing money because they are non-occupants in vacant space. Our view is that there are benefits and amenities that accrue to an ongoing business that do not accrue to vacant space; therefore, if you want to come up with one 45% rate on your business tax, that would give everybody the exact same rate and not shift the tax burden on to a party that is a non-business occupant, being an owner.
The Chair: We thank Mr Daniel and Mr Stewart and the Canadian Institute of Public Real Estate Companies for coming in and taking the time to make the presentation.
TONY ARAUJO
The Chair: We now welcome Mr Araujo to the standing committee on finance and economic affairs. We have 20 minutes together.
Mr Tony Araujo: You all look bright and chipper today. I guess you're not suffering from too much sleep deprivation.
Good afternoon. I would like to thank the committee for providing me with the opportunity to speak to the issue of property tax reform in Ontario. I wish to speak to the various changes that I believe will come into force with the adoption of this piece of legislation and to make suggestions for its improvement. I would like to preface my presentation by saying that I am not an expert on tax systems, but as a small business owner and an apartment dweller in Toronto, I believe I have as valuable a perspective on the property tax system as any expert.
Virtually everyone commenting on this issue acknowledges that comprehensive property tax reform in Ontario is long overdue. Political expediency has long been the order of the day as various governments of all political stripes have grappled with the issue, studied it to death, proposed change and then acquiesced to demands of vocal opposition groups. The property tax system is a mess and nowhere more so than here in Toronto.
Let me begin by saying that paying for local government services with taxes based on the value of property will never be the fairest system for paying for those services. That being said, other than giving municipalities the power to collect income taxes, I know of no other fairer method for paying for local services.
Prime Minister Jean Chrétien announced yesterday at his meeting with President Bill Clinton that he would like to see free trade extended to South America. As much as many in our local government would like, free trade will not go away. It's a fact of life and it's here to stay. The competitive environment in which Ontario businesses must operate changed fundamentally with the introduction of free trade; the property tax system, however, did not.
In order to compete effectively, business needs a competitive tax system. That word "competitive" brings with it much unnecessary baggage these days. In the context that I am using it here, "competitive" is not a euphemism for the lowest common denominator. A competitive property tax system does not mean that Ontario must race to the position of the lowest tax jurisdiction. Those taxes pay for valuable services. But it does mean that property taxes should not function as an unnecessary distortion.
As I described earlier, I'm a service business owner with eight employees. My business pays a property tax every year. I can understand that tax. That tax tries to reflect the size of the property we occupy, the local services we use ourselves -- for instance, sewers -- plus our share of those services that the community provides to its citizens as a whole, like recreation. The businesses I compete with in the United States also pay a similar tax, some higher, many lower, but they don't have a second arbitrary business use tax placed on top of their property taxes.
My business has been successful in competing in the new global economy; 15% of our sales are from foreign companies, up from 0% five years ago. I find it difficult to understand the opposition to the elimination of the backwards business occupancy tax. Developed nearly a century ago, the BOT that my business pays has no relationship whatsoever to the services we obtain from our local municipality, none at all. The BOT is an unnecessary distortion to the property tax system. The value of the tax must still be collected, but we don't need a separate system, with irrelevant classifications, separate billings and separate collections, in order to collect it.
The value of this tax can and should be collected within the regular realty tax system. It's even conceivable that property taxpayers could see a savings from the elimination of this separate system. The inequities of our current system are not there today because local government wanted these inequities, necessarily. They've just never had all the necessary tools to make the system fairer. This bill gives local government some of those tools.
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One of the tools this bill gives local government is a requirement for regular assessments. The Toronto property tax system is already based on market value, but those market values are in many cases effectively frozen in time. Many properties were assessed last in the 1940s, others as recently as the early 1990s. In effect, the Toronto property tax system is prehistoric, just like the dinosaurs in the movie The Land That Time Forgot.
The lack of a requirement for regular assessments has left the Toronto property taxpayer hobbled with huge inequities. Million-dollar mansions pay the same taxes as working-class housing. This bill compels municipalities to assess properties on their current values on a regular basis.
Even with this incredible imbalance, governments both local and provincial have been unwilling to tackle the problem, because any change will have as a result some paying more and others paying less. As recent governments have experienced, forcing people to pay more taxes is usually not a ticket to re-election. But fairness must be brought back into the system. I applaud the government for its willingness to take this electoral risk. All Ontarians will ultimately benefit.
Fairness is lacking in the present system whenever reassessments are made on a property. The peaks and valleys that can be expected to arise from current value assessment are sensibly dealt with in the bill by giving municipalities the ability to use three-year rolling average assessments. The committee may wish to re-examine this figure and extend it to five years.
During the late 1980s, the relative value of many neighbourhoods in Toronto changed very rapidly. Even with a three-year average, property taxpayers in, for example, the areas surrounding the Beaches and Annex neighbourhoods would have experienced double-digit tax increases over and above the regular increases they did experience. A five-year average would help ensure neighbourhood stability by sheltering existing property users from price fluctuations in adjacent neighbourhoods.
As a downtown apartment dweller, I am glad to see the government move on the first substantive effort at rental property tax reform. Many apartment dwellers must use this type of accommodation because it is more affordable than a single-family home. In many cases they have no choice. Even though many apartment dwellers have below-average incomes, they pay more property taxes through their rent than equivalent single-family homeowners. There is no better example of the unfairness in this tax system. Those who are not as well-off already pay a larger percentage of their income for accommodation, plus they pay more property taxes as well.
Although the bill will allow municipalities to address this imbalance, it does not compel them to do so. If past experience is any indication of future actions, I believe there is a high probability that local politicians will choose not to fix this problem. The committee should examine this issue with the goal of changing the legislation and compelling municipalities to address this historic imbalance.
If municipalities do revise property taxes on rental accommodation and a reduction to the landlord's property taxes ensues, there is no mechanism in the bill that ensures that renters will see any of that decrease. Renters presently pay for all the property tax on their accommodations. Any decreases in property taxes should be reflected in a corresponding decrease in their rents. The bill does not address this issue. Nothing compels landlords to pass on these savings. The committee should examine this bill or recommend changes to the Rent Control Act with the goal of ensuring that tenants reap this benefit, not landlords.
The bill's other property tax initiative, the reduction of property taxes on new rental buildings, is a sensible proposal to help increase the stock of rental dwellings. I don't believe, however, that an arbitrary limit of eight years for this relief should be specified in the bill. Local municipalities should be allowed to determine an appropriate interval which would reflect their individual circumstances.
In summary, property tax reform is overdue. Business needs a modern, sensible property tax system. The BOT should be eliminated and the value of that tax collected within the regular realty tax system. The rolling average time period for assessments should be extended to five years. Municipalities should be compelled to bring property tax fairness to renters. Landlords should be compelled to pass on to tenants property tax savings arising out of reassessments, and municipalities should have the power to decide the length of time for tax relief on new rental accommodation. Thank you.
The Chair: Thank you very much. That leaves three minutes per caucus, starting with the government caucus.
Ms Bassett: Thanks for your presentation. It was very interesting. You mentioned at the beginning that savings may be had from the elimination of the BOT in some cases, and I wondered if you could elaborate on that a bit. How will businesses recoup some savings?
Mr Araujo: In my business -- my business is located in Mississauga; I live in Toronto -- we sign a separate cheque for the business occupancy tax. The realty tax is included in our lease. So there are two separate organizations -- they may be located in the same building, in city hall in Mississauga -- sending out two separate bills: One bill goes to our landlord and one bill goes to us. There are two separate organizations collecting the money and doing whatever it is they do with it. If you've got one organization sending out a bill, one organization receiving a cheque from one source, I think there should be savings.
Mr Phillips: I appreciate your thoughtful presentation. You've obviously thought about it. Your advice on the BOT -- as you point out in your brief, everybody says tax reform has to take place and the BOT is obsolete and that sort of thing, but the devil is in the detail, as they say. We have to be sure we aren't replacing one unfair system with another unfair system or that there aren't some gross inequities.
There has been some discussion about giving smaller businesses a break, because it looks as though, if you apply the BOT across the board -- you just heard the real estate people -- it's a 45% increase in lease payments. What's your opinion on providing small businesses with a break over large businesses in the property tax area?
Mr Araujo: I'm not sure there's really any advantage to providing small business with a special break. City politicians will still have a pie to divide and that pie has to be divided against certain classifications that the minister will have decided are in the bill. As long as that pie is still divided among those business classifications, if you want to classify businesses in a different way or add additional classifications, I don't see a problem with that, but I don't think small businesses need any particular special breaks in the tax system.
Mr Phillips: The bill doesn't allow it right now.
Mr Araujo: I understand that the minister can define what categories of properties would be in each classification.
Mr Phillips: He is saying he may bring in a companion piece of legislation this spring to allow him to establish the second class of commercial businesses, but your advice is that you don't think it's appropriate to be providing a break for smaller businesses over larger businesses.
Mr Araujo: I don't know the details of the planned split. I understand that a city will still have to divide the pie. They'll be dividing up the pie in more discrete portions than they've divided it up in the past; they may want more portions to divide it up into, more classifications, but I don't think small businesses per se should get a special break on taxes. Small homeowners don't get a special break on taxes. They pay the share of taxes that their property value says they should pay.
Mr Pouliot: Thank you, Mr Araujo. I can't say, "Spoken like a true landlord about your tax."
Mr Araujo: I'm not a landlord.
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Mr Pouliot: I know you are not, sir. With respect, some presenters, many in fact, vis-à-vis the business occupancy tax, the BOT, while they do appreciate the removal of such a burden, such a tax, are seeking through legislation the assurance that there won't be a sideshow established whereby there would be possibilities from the municipalities to fill in the vacuum.
You've gone one step, not opposite but a step in what I trust is the right direction to give the assurance that the savings that are generated through the elimination of the BOT get passed along to who is in essence the true taxpayer, which is the tenant, some legislative mechanism whereby some of the savings get passed there and/or, you would perhaps agree, into the maintenance and amelioration of the property.
Mr Araujo: I mentioned that there may be a savings in the elimination of the BOT; I didn't say there would be. I think that if a landlord has his property reassessed and an apartment dweller or an apartment building pays a level of taxation similar to a single family dwelling, apartment dwellers will realize a saving, and that saving shouldn't go to the landlord, it should go to the apartment dwellers.
Mr Pouliot: Given the voracity and the insatiable appetite of some landlords, I for one would support some guarantees, however flexible, to make sure the people who pay for all this are no longer further eroded, because there's a train coming down big-time and there will be so many added responsibilities and pressures on municipal council that unless it is legislated, they might not have the opportunity to give it the attention it deserves. I agree with your presentation. Thank you kindly.
NORTH ROSEDALE RATEPAYERS' ASSOCIATION
The Chair: We now welcome the North Rosedale Ratepayers' Association, Mr de Auer and Mr Kellogg. Welcome to the standing committee on finance and economic affairs.
Mr Peter de Auer: I'm Peter de Auer and this is Paul Kellogg. We are both directors of the North Rosedale Ratepayers' Association and obviously thank you for the opportunity to be here. There's been some material distributed, and those are essentially notes from which I intend to speak for as short a period of time as I can get away with. Our presentation will have a very narrow focus. This is strictly on the residential property tax, with which we've been grappling for the last -- however long it is, several times historically, but I guess for a little over a year in this particular instance.
First of all, just to take 10 seconds to tell you who we are, the ratepayers' group represents about a third of the total households in the area. There are about 1,000 or so, and we have somewhere around 350 members. The board is elected democratically annually, and we have nearly 50 years of experience in working with government and residents on essentially local issues. We only foray into the larger forums if absolutely pushed. This happens to be one where there's obviously a relationship between local issues and impact on residents and the broader community, but by and large we focus on parking and zoning and traffic and all those other things that impact on local issues.
First of all, we think the goal of municipal taxes is essentially to pay for local services. This is fundamentally different from the income tax, which is more appropriate where the issues are diffuse and specific services provided are impossible to easily allocate to individual properties, if one wants to get to that nitty-gritty level.
Essentially in the debate for the reform of the system there appeared to be two systems which came to the fore. One was AVA, of which, without going into too many details, we thought we'd highlight the issues.
We think that AVA is basically a simplistic answer to a complex problem. The two principal characteristics on the positive side of AVA are that superficially it is fair and one can say that if one has ability to pay, then one should pay if various levels of government have a need for additional funds. Again, superficially it's understandable, because although it might be difficult to establish a market value for one's property, at least there are benchmarks out there which are readily available if people do a little bit of homework.
The problem with AVA is that it's expensive to implement and maintain. We can get into the details, but we're certainly talking about a difference of maybe $150 million to $200 million to implement and somewhere between $30 million and $70 million, in round numbers, to maintain in terms of various costs. Again we can go into that if you'd like to find out how we've achieved those numbers.
Secondly, the system is inherently volatile because it's dependent on relative movements in market prices, and it's fundamentally unfair, unlike what most proponents have said, because there is no good correlation between the location of properties and the incomes of property owners. This has been established by the Fair Tax Commission and other studies. Essentially our conclusion is that AVA is a wealth and income tax, which is contrary to the purpose and objective of municipal taxes.
The alternative which has appeared is unit value, which is fair in the sense that it's oriented to paying for services that are rendered. It's inexpensive to implement and maintain. It's easily understood in the sense that it overwhelmingly depends on the size of property and the building on that property and it needs only to be modified modestly to remove its principal opposition, which is that this particular tax shifts the burden from high-income neighbourhood type of properties to low-income areas. The attachment to these three pages of notes will indicate that this is possible and simple and it has been proposed by Toronto and it's just about as non-intrusive as anything can get.
The fourth point we'd like to make is that our association, rather than choosing between the two systems and getting perhaps into the political arena, has simply concluded that the best way for the government to handle this is to implement tax reform but provide local jurisdictions with local options on how to collect the taxes. This is not a question of the total amount of money to be collected. That is a given. The question is, should each local jurisdiction have the opportunity of deciding how those taxes should be collected?
We think that to insist on the need for uniformity, one system for the province as a whole, in an age of computers when the computer can track a variety of systems is just absurd. This is just going back to a previous era which we don't think has a particular place today.
The next point is that, with all due respect to the government, there has been a consistent refusal in disclosing the impact of whatever changes it wants to implement, and in particular the AVA system. To say that every homeowner in the province is going to be impacted, perhaps significantly, for their largest single lifetime investment is, we think, absolutely untenable and unacceptable.
Again, this is not a question of paying or not paying. To give you an example, we elected a Liberal federally in our area knowing full well that the implication of that was that they were deficit fighters and our taxes were going to go up and we were all going to be poorer because of it. The fact is that if the government wants to increase taxes for a number of people, we think there should be a justification for that, but equally there should be disclosure.
When MVA was supposed to come in several years ago, there was absolute disclosure on what was going to happen. That was available by house. I was the president of our association at the time and we wrote to every one of our constituents, all 1,000, members or non-members, to indicate what the impact was going to be. We think that disclosure and impact studies are very critical to the process.
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The next point we'd like to make is to give you one specific example. We've been disturbed by a large number of comments from people who we think should have known better about the fact that not many people seem to have any kind of ability to tell us what the impact was likely to be, and in fact to this day that whatever formula is going to be implemented in AVA is not known. Since we do have the information, we thought we'd use one specific example.
First of all, the lowest multiplier of market value that we have seen in terms of formula that's been disclosed by anyone is that the tax will be 1.2% of the market value of a property. The highest number is somewhere around the 2% area. If one takes a house which would not be uncommon or untypical in our area, 2,500 square feet and a market price of about $600,000, the results of implementing AVA based on that multiplier is an increase in tax on that house of between 67% and 179%. That is a realistic market value of a house that has in fact changed hands. This is a real example but the multiplier is a question mark. But as I say, 1.2% is the lowest figure we've seen. It hasn't been denied or confirmed by anyone, but certainly not denied.
The question in our minds is, what possible justification could the government have for taking a property tax which is not inconsiderable to start off with and increasing it by that kind of percentage in an era of 2% inflation on the one hand and no new services or infrastructure being provided in the area on the other?
As far as our small area is concerned, apart from the service cutbacks, the only service that has been implemented for at least 10 years, and considerably longer in reality, is the relining of the watermains at a time when, quite frankly, if one flushed the toilet on the ground floor, the water would be cut off on the third. So that was necessity rather than a desire to do anything.
Our recommendation is that the government ought to seriously examine the alternatives to AVA -- there are a number of them that are viable -- and also improve significantly the process which it intends to use for implementation both in terms of disclosure, dialogue and all those other things. This is in the context that we've had numerous meetings with the minister, who happens to be our member of the Legislature, and we would certainly like to be part of a solution for all parties. Thank you for providing us with the time.
The Chair: Thank you very much. That leaves us about two minutes per caucus.
Mr Phillips: We're in the same boat you are, and that is that the government knows it wants to change the property tax in the province. We've got two weeks of hearings. I don't think there's ever been a bill with as broad and dramatic a financial implication as this bill with so little public information, and it's deliberate. They know that if the impact studies are out there, there are going to be some very dramatic implications and the people who are going to be hit would be very angry. As I've been saying, they want us to sign a contract but they won't let us look at the building; they won't let us look at the thing we're buying.
It is going to have some very profound impact. The challenge we're into is that there is the need for property tax reform, and the government simply refuses to give us the impact of those so that at least people can be aware of what we're being asked to approve.
The challenge is going to be that this train is running pretty fast right now. We've got another five and a half days of public hearings, one day of what's called clause-by-clause, and then away it goes. Can you give us some indication, if this bill passes, of what the real human implications are for people in your area or the people in Metropolitan Toronto?
Mr de Auer: Perhaps, Paul, you'd like to answer that.
Mr Paul Kellogg: I don't think there's anything new that I could say other than I know, having lived elsewhere, that if we ever talk about north Rosedale, people will shed crocodile tears. I have to tell you, having lived in many areas of the city, that north Rosedale isn't any different from any other neighbourhood. There are houses, most of them not renovated, people living behind old lace curtains, people on fixed incomes, people with basement apartments, triplexes, rooming houses, apartment buildings, co-ops. The implication in north Rosedale would be the same in the city, perhaps an exaggeration in other areas of the city. This kind of AVA tax reform would be devastating.
Mr Phillips: There's an old saying that Ontario helps keep Canada together because everybody in the rest of Canada likes to not like Ontario. I think Rosedale always has that challenge, because it's often used as the photograph of the home that's assessed and paying low taxes. You tend to be the poster person for property tax reform. But you're saying that there are homes and apartments and basement apartments in your area that will mean -- what kind of tax increases are we talking about here?
Mr Kellogg: Anywhere up to, as we pointed out, 1.2% to 2% on the actual value of the property, which could translate into 200% of the so-called market value of the property. We don't find ourselves to be much different from other neighbourhoods in the impact it would mean to us. Many people simply can't afford it. I don't care if they're even "comfortable." I'm sure all of you would know what it would mean to you to immediately have your taxes go up one and a half or two times, especially when you're on fixed income. We have a lot of elderly people in north Rosedale.
Mr Pouliot: Welcome, gentlemen. You've said that there was no correlation between people's income and where they live. Thank you very kindly. I was raised on the waterfront in Montreal and for years I thought that people in Westmount made more income. Thank you for correcting me. I'll check it out when I go to Parkdale.
Mr de Auer: No, it was the distribution.
Mr Pouliot: No, you didn't say "little"; you said there was no correlation.
Mr de Auer: Distribution.
Mr Pouliot: Okay. Thank you kindly. Then you went on and mentioned paying for defined services, and you give us the very good example of the sewer and water theory that goes from A to B. But you're about to embark on a lot more than hard services. You're about to go into all kinds of social services: homes for the aged, social care for the elderly. Welfare recipients: You'll pick up 50% of the cost of prescribed drugs for those on social assistance. Transportation system: Rather than 75% for the rolling stock, you'll now pick up 50%. The list is almost endless. That comes with the reassessment. It's all webbed and meshed; it's the big picture.
You've indicated that your taxes will go up from 67% to as much as 179%. Will you be able to maintain a value of $600,000 with this? Because if you're not able to, maybe what you've said at the beginning will become true, that it will not matter so much how much you make but where you live, because you'll have the freedom of choice. How will it impact on the price of property? You'll be assessed fully at $600,000, but then you'll have to wait three years to find out what the real assessment is, because all those changes will take place after the assessment.
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Mr de Auer: We're fully aware of that. That's why we want the impact studies first and the ability to establish a dialogue on what can be done about the system. But there still is a difference between the income tax and property tax. The impact on the value of the property will clearly be down. The other aspect, which is the one Paul raised, is that for those who can't afford to pay the tax, people will move out, and that option has always been open.
Mr Ford: Gentlemen, welcome this afternoon. I'd just like to mention your point 3 here:
"Taxation Options: AVA -- simplistic answer to complex problem; superficially `fair' (ability to pay) and understandable (market value) but; expensive to implement and maintain; volatile."
What I have to say is about the real estate: If you go into any real estate office and talk to a realtor -- I don't care if there's a dozen in this room -- the first thing they'll tell you is "location, location, location." You know that yourselves, wherever you buy real estate. This says, "understandable (market value) but expensive to implement and maintain...no correlation between location and income."
There isn't any correlation between income and location. I understand what you're talking about. I used to be in Rosedale, so I know exactly what you're talking about, the old drapes and everything, and some pensioner sitting in there. But whether it was through no fault of their own, you have to understand one thing: There's an escalation in the value of that property and ability to pay is this. I always say, unfortunately or fortunately, it's gone up tremendously in value. If they're not taxed at a higher rate, then somebody else has to pick up that extra tax to pay. There's no hope of recovery for that other person subsidizing that person, whether it's in Rosedale, whether it's in Parkdale, whether it's in north Toronto, wherever the devil it is. I'm not envious of anybody. I just say that in these circumstances somebody has to be subsidizing somebody else and this is what we have to get: equity across the board.
I understand clearly where you're coming from, because there are an awful lot of people in this city who are senior citizens, whose husbands have passed away or whose wives have passed away and they're sitting there and they're getting a certain income but the value of their property has escalated. I know some of those houses were bought for $100,000 or $200,000. Now they're worth $750,000 or $1 million, different places around the city.
How do you compensate for one person paying a very, very low tax and having this tremendous equity? Value in our society is placed on whether you want paintings, playing cards, property or anything. That's the way our society works, as you know. So somebody has to pick up the other end. Is that fair?
Mr de Auer: What we're really saying is that perhaps there's a different way of looking at this. Nobody has to pick up anything if my garbage gets collected or something is delivered to the house. I think everybody ought to pay for that particular service. Whether the house is worth $600,000 or $100,000 or $2 million is irrelevant to the service that's provided, and that's all we're getting at. So there's no compensation for somebody who is in an expensive house versus a reasonably priced house. They're getting the same service and therefore they should pay approximately the same price.
Mr Kellogg: I think you're missing a point. I'd like to quote: "Let's be up front. Let's be clear. If ever the people of this country, of this province and of the city are being fed up with politicians and saying, `Give us the facts. Tell us what's happening.'" If you don't remember us after we leave, just remember that we pleaded for an impact study.
"This isn't about enabling legislation. It's not about enabling legislation, one government to another. This is market value assessment. It's a tough issue. It's a difficult one. It was difficult for us to deal with. It was difficult for the Liberals to deal with. It's been difficult for you to deal with. But at least be honest about what we're dealing with. It's market value assessment." This is from the words of Mike Harris, November 1992.
We are asking for, if nothing else, an impact study first. Let's know what the price of the car is before you place it in our driveway and ask us to sign a blank cheque, whether we live in north Rosedale or Parkdale.
The Chair: Thank you very much for attending the committee hearings, gentlemen. We thank the North Rosedale Ratepayers' Association very much for coming in.
PETER TABUNS
The Chair: We now welcome Councillor Peter Tabuns from the city of Toronto.
Mr Peter Tabuns: Thank you for the opportunity to appear today before your committee.
I'm sure you won't find anyone who would stand before this committee and say that we currently have an equitable and reasonable property tax system in Metro Toronto, and I don't think there's any question that changes will have to be made in the name of fairness. However, Bill 106 proposes to make a series of shifts and deletions which I think ultimately will be highly destabilizing and ultimately not one step fairer for either businesses or residents.
Whether you want to call it actual, current or market value assessment, the latest plan contains the same principles of market value assessment that were soundly rejected by the people of Ontario. The same people may also remember that the Minister of Municipal Affairs, Al Leach, pledged that he would "never support the imposition of MVA in Metropolitan Toronto," yet that's what you're considering at this moment. This is a copy of Mr Leach's campaign statement on the matter.
My colleagues and I are still waiting to hear back from the province about the study of the impact of MVA on residents and businesses based on 1994 values. The last time we had a chance to debate this issue we had the 1988 values that Metro Toronto provided to us. I gather there was an update done. I think it would be at the least fair to allow people who will be affected by this tax increase to see what their new taxes would be. Judging from the lack of response to our request for the figures, I am concerned that the numbers are probably quite frightening.
The mammoth task of obtaining accurate assessments for some four million properties does not seem to be going ahead -- you seem to have had difficulty finding companies that would be willing to assist your provincial assessors in doing this work -- yet the government seems determined to push this through, and I think without regard for the consequences.
Initially there was support in Toronto from the business community for all of this, but this is turning into a chorus of questions as business people realize that the removal of the business occupancy tax causes two immediate problems.
The first of these is that this would create a huge tax shift to commercial tenants from landlords in a huge number of cases where bulk leases are in place.
The second problem is obvious: Where is all the lost revenue going to come from? Does the province seriously expect municipal councillors across the province to obtain that revenue at the expense of homeowners and tenants? Perhaps the provincial government could simply issue a notice to the taxpayers when they receive their cut, something to the effect of, "Please remit your rebate directly to your municipality," because I think that's what you'll see in most instances.
The option of tax deferrals for senior citizens and disabled persons will be of little comfort to them. Putting a mortgage lien on their property to satisfy an assessor's notion of equity will hold little appeal. Even if some people were to take advantage of this scheme, the phased-in increases will be more than many can bear. Those with relatively stable jobs are not guaranteed corresponding increases in pay, let alone jobs themselves.
I think there is general agreement across the province, across Metro, that the current system isn't working. That's clear. Successive panels have dissected and studied the options. In this instance, however, I think the solution that is being put forward is one that is not workable and not acceptable. I'd urge you to take a step back, study the impacts carefully, let the people who will be affected by the impacts know precisely what the dollar figures will be for those impacts, and don't go ahead with this flawed alternative. Thank you.
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Mr Pouliot: Thank you very kindly for your presentation and your time and dedication, Councillor. We're trying to slow the process down, so we have a filibuster, and when you've only 15 as members of the third party, it's -- I'm not complaining; I'm just stating it -- a little taxing. During the few hours' sleep I had yesterday I had this dream.
Mr Rollins: That must have been a nightmare. Have you had breakfast yet?
Mr Pouliot: It was a nightmare and I want to share this with you. I was no longer a member of the Legislature -- I've been here 12 years -- I was an assessor in the city of Toronto.
Mr Tabuns: That was indeed a nightmare.
Mr Pouliot: It was so difficult, I woke up and I was happy to come back here to the Legislature. This was one of the most difficult things to do. I was actually frightened.
The election is in November. The assessment is by April 1, 1998, 3.8 million units, an undertaking so massive it has never been contemplated in North America. It's being done by outsiders, by instant coffee assessors, some with a minimum of one day of training.
You will be the recipients of a downloading of unprecedented proportions. With all this happening, you'll have to strike your interim tax levy, then you'll have to go to the meshing and the webbing and the distortion, the amendments and everything else. Do you know what I'm thinking? I want your comments on this. That with this nightmarish experience of last night, maybe I'll still prefer to be an assessor than seeking re-election in the city of Toronto.
The riding I represent, Lake Nipigon, runs to Hudson Bay. It's the largest geographically in the province. We asked municipal officials -- it's not their fault -- what does this mean? What is the menu? Who's going to pay for this? What about administration? What about the cost of this? Less than nine months before implementation no one seems to be able to answer the questions. In our case, who's going to pick up the cost of the ambulance? What about our hard services: capital, policing etc? Confusion. Nobody seems to be able to give us the figures that we're after so we can represent people to the best of our ability. Are you having the same experience in this sophisticated environment?
Mr Tabuns: We have the same concern, that what we'll inherit should all of this legislation go through will be a very chaotic environment. It will be very difficult for any municipal government to function in a situation where the tax assessment that goes out will be questionable and thus subject to widespread appeal. We won't know what our revenue is, just as people won't know what their taxes are, until the day the bill finally comes through. Given on the one hand uncertainty about our revenue, disturbance on the part of the taxpayer and confusion as to exactly what we're going to be paying for and in the end how we pay for that, there is great concern not just among the politicians but among administrative staff, not just at Toronto city hall but across Metro, as to how this thing will actually work.
One of the fears we have is that we'll inherit the same sort of chaos that descended on the family support plan. There will be people unhappy at both ends, people who will be remitting funds and people not getting the funds that were remitted, and just a situation where everything has come apart.
Mr Pouliot: They're expecting 900,000 appeals. That's a mess. That's an awful lot of appeals.
Mr Tabuns: Well, it's quite a job creation opportunity, I'm sure.
Mr Pouliot: I guess we'll have to go and discover some more boxes someplace in Downsview.
Ms Bassett: Thank you for your presentation. To pick up on my colleague Mr Pouliot's statement on the appeal situation, our system is based a bit on what's happening in BC. As a Star story just this week or last month pointed out, they've had a 2% appeal rate. That would be far better than the current appeal rate where we're losing, according to the municipality, $100 million a year in revenue. This is one of the reasons we feel this system would be good.
Also, in terms of the business occupancy tax -- you are worried about what's going to happen -- we will save, of course, significant moneys in administrative costs. We already lose $200 million because it's impossible to collect from tenants who vacate their properties or have underground businesses or whatever.
Municipalities are also going to have the local option to decide whether they want to recover the revenue, be it from the BOT or not. They can use the administrative savings to reduce the amount recovered and they will be able to pass it on in lower taxes if they wish. Practically everybody on all sides of the business community has asked us to get rid of the business occupancy tax. We think it's a good move, and by giving the municipalities the power to spread the revenue loss over bases that they want, over the wide-range tax base, we think they will do it in the way that best behooves their communities. Municipalities have been asking for that responsibility for a long time. Would you argue with that?
Mr Tabuns: Let me go through a number of the points you've made. First, about the situation in British Columbia and the low rate of appeals: Within the last six months there has been a conference at the city hall about property taxes and looking at the British Columbia system. People from British Columbia who administer their system felt that what was proposed in Ontario was going to result in chaos, because they could not see how we could assess all these properties in the time frame that was allotted. They felt they were not in a position to do that, even with the experience they've had over the last few decades.
Ms Bassett: But aren't their appeals way down?
Mr Tabuns: I won't argue that, Ms Bassett.
Ms Bassett: That's all I was saying.
Mr Tabuns: But I'd like to say that what you're proposing is a process that will result in a large number of faulty assessments, because I don't see physically how you're going to do the assessments properly in the time you've allotted. That will create chaos.
Ms Bassett: You don't, but that's hypothetical.
Mr Tabuns: It's true it may be hypothetical that a train will crash through a bridge and fall into a river valley, but if the bridge isn't there, the chances are very high that hypothetical possibility will come to be.
In terms of transferring the burden from the business occupancy tax to other categories of taxpayers, I'm sure you can appreciate that if you were to propose a substantial tax cut for corporations in this province and shift the burden of that tax cut to individual income taxpayers, that would not be politically acceptable. For us to shift tens of millions of dollars in taxes paid by businesses now to individual homeowners, including seniors --
Ms Bassett: I don't think you'll do it, because you'll be the people in charge of doing it. You won't do it; you'll put it on to the businesses that can afford to absorb that cost. We are giving you that responsibility.
Mr Tabuns: We will be putting it on to many landlords, many of whom will have leases where they're going to have difficulty passing those expenses on to their tenants. I think you're going to create a fairly chaotic situation in the business community. You need to talk more broadly to the business community about the impact of this measure. I don't usually come here to argue for the business community, as you might be aware, but you need to talk to them extensively because I think you will find real difficulties for them with this proposal.
Ms Bassett: We haven't so far.
Mr Tabuns: Fair enough.
Mr Jim Brown: FRPO was in I guess earlier today. I know how much the city promotes and tries to protect tenants. But I was distressed -- and maybe you could clarify this, maybe I didn't understand him properly -- that he was saying that tenants in the city of Toronto pay up to five times as much as homeowners. I have a problem because if that's true and then you're trying to convince tenants that you're on their side, there's something inconsistent with that, something incongruous. I don't know. He must be wrong?
Mr Tabuns: I appreciate the question, because I'm a tenant in a high-rise building and I pay something like $3,000 a year in property tax. Previously I rented a house; I paid $1,600 in property tax.
Mr Jim Brown: So you're doing it to yourself?
Mr Tabuns: Since I don't set the tax rates between commercial and residential, I don't think that's an accurate statement. The difficulty for us is what you're proposing, which changes the Rent Control Act, would not guarantee that any reduction in taxes for tenants would be passed on to those tenants. Our expectation is that any reduction in taxes to tenants would simply stay in the pockets of the landlords. Set up a mechanism that guarantees complete flow-through and give us a phase-in mechanism, and I think you would find many cities, certainly the city of Toronto, picking up on that.
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Mr Phillips: Just to comment on the business occupancy tax: You've got your finger on a problem. The Canadian Federation of Independent Business -- which I have a lot of time for; I think they look at these things carefully -- said, "Ironically, it's likely that the elimination of the business occupancy tax will harm our sector."
They know two truths: One is that municipalities have to recover the revenue. They've all told us, without exception, that they will put it back on the commercial-industrial sector. When somebody is paying 75% and somebody is paying 30% and you're going to average 42% at the end of it, the one that's paying 70% goes to 42% and the one that's paying 30% goes to 42%; you don't need to be whatever to figure that out. It is going to create a lot of problems.
I'll make another comment: You've made a good point on the impact studies. It's unacceptable that the Legislature is being asked to approve sweeping property tax changes that will have a profound impact on people and the government will not tell people how it's going to impact them. I know why they're doing it: because they know people are going to be angry. This is a cynical way of keeping people from getting angry. They won't be angry today, but I guarantee you they'll be very angry when finally it hits them and they say, "Why didn't you at least tell us this was going to happen?" There's no question the government knows what's going to happen and won't release the information, including to us. We're going to have to sign this thing in three or four weeks --
Interjection: In blind faith.
Mr Phillips: In blind faith, as my colleague says, and it is a clear plan to deny the public the information. It may be good politics, because there's no doubt they'd be lined up outside the doors here once they knew, including a lot of the business sector, but it's a very deliberate ploy. We can't get it out of them. We tried to pass a motion in the Legislature, which was rejected by the Conservative members, saying that the government should release its impact studies. It wasn't the cabinet that turned it down; it was the backbench members.
The challenge here, Peter, is that I don't think there's a lot of sympathy across the province for the city of Toronto, because there are the pictures in the paper about the $1-million Rosedale mansion that's paying very low taxes, so that's always put up on the slide and there's the enemy.
I'm almost having difficulty forming a question for you, because I think we're heading down a very unfortunate track here, but the question would be, how much has the city of Toronto tried to get the impact studies from the government and what's been the result of that work?
Mr Tabuns: I'll answer that last question; I just wanted to comment on some of the things you've said, Gerry. I gather we filed a freedom of information request and we're having difficulty getting the information even though we've filed that request for information. I don't think we should even have to go that route. I think it should have been released at our request.
There are just a few other things, though. It's interesting that the Canadian Federation of Independent Business came and stated that there are problems with this. The analysis from our economic development section is that the removal of the business occupancy tax will shift a large portion of the burden from the largest and most successful companies in Toronto to all the small mom-and-pop businesses on the retail strips in Toronto. I think that's of great consequence for the viability of the city, not just the city of Toronto but across Metro. If you have all those strip plazas suddenly taking the load from the major banks downtown, that's quite a hit and I think very problematic for the city's stability.
I think you're quite correct that the city of Toronto doesn't get a lot of sympathy in the rest of the province when pictures of large houses in Rosedale are shown. When we went through the MVA fight the last time with Metro, I was living in a house that was about 12 feet wide on a property that had a 15-foot frontage. The house beside me was identical and the house beside that was identical, so we were about a 45-foot frontage and together we were paying over $5,000 in taxes. If you look at a home in Scarborough on a 45-foot lot, many of those are paying $4,000, $4,500 in taxes. So the aggregate for those three houses, same frontage, was more than what you're paying in Scarborough.
I'm sympathetic to a person in Scarborough who has built or bought in a low-density area and is paying a tax that's more than their income can carry. But the reality in Toronto is that because of density, per linear foot in any street there's a lot of tax being collected, and that isn't going to play well in the rest of the province. But I would say there are other places in the province that are going to have difficulty with what is proposed, not just us, because they're going to have to deal with the volatility issue, they're going to have to deal with the business occupancy tax issue etc.
The Chair: Mr Tabuns, thank you very much for coming before the committee today. We appreciate your input and your experience that you shared with the committee.
TOWN OF OAKVILLE
The Chair: We now welcome the corporation of the Town of Oakville, Councillor Kevin Flynn and Ms Séguin. Welcome to the committee.
Mr Kevin Flynn: First of all, I would like to thank your staff here, in particular the clerk of the committee. He was quite accommodating. I think we had to change around a few of our times to allow me to address you this afternoon and I certainly would like to extend our thanks.
My name is Councillor Kevin Flynn and I have been asked on behalf of the council of the town of Oakville to present our views on Bill 106, the Fair Municipal Finance Act, 1997. I am also the co-chair of the Oakville Citizens' Committee on Property Tax Reform, a very active group of local citizens from a variety of disciplines that have been meeting over the past few years to address the property tax reform issue. Accompanying me today is Michelle Séguin, the director of finance and the treasurer of the town of Oakville.
I'd like to start by expressing my appreciation to the government for attempting to reform property tax. I don't think there's any question that I haven't heard anybody say that isn't in order and is necessary. The proposed bill, however, in my opinion falls far short of real reform. It simply replaces MVA with another form of MVA called AVA. The lack of an impact study I think is extremely important and should be addressed by the government if possible, because it is simply unfair to take this type of a giant leap without informing the residents of my community or the citizens of Ontario of the potential impact.
I'd like to address three main concerns today that particularly impact on the town of Oakville. Those are local government accountability, what we see as a potential increase in residential property taxes and the tremendous impact this bill will have on business improvement areas. I'd like to start by addressing local government accountability.
The town of Oakville is on record, has been on record for some time and still is on record, in promoting local government that is accessible and is accountable to its constituents. We feel that Bill 106 dilutes the accountability of local councils in a tiered system by giving most of the responsibility to regional councils. In particular, it gives regional councils the authority to establish the tax rates and to establish the phase-in policies.
We believe if the tax rates are established by regional councils, it reduces the local government accountability. Bill 106 allows new property taxes to be established, albeit very restrictive, but they must be established on a region-wide basis. Therefore it is extremely difficult to meet the needs of any particular community within the region. The legislation does allow authority to be delegated, but the legislation that allows that is very restrictive.
We recommend that you soften the restrictiveness of this legislation that allows you to delegate to the lower-tier municipalities.
I'd like to address phase-in policies as well. The authority under the proposed bill would rest at the upper tier and there's no provision at all in the bill to delegate the responsibility for the phase-in policies to the lower tier. We again believe that this reduces local accountability and we wonder how the implementation of a phase-in program to smooth the impact of CVA or AVA is any different than the recent phase-in that we have implemented in the town of Oakville to smooth the implementation of region-wide market value assessment.
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The lower-tier municipalities are the people who are responsible under the present system for the implementation of phase-ins. We believe that we are best suited to implement or to present a phase-in policy that best meets the needs of local citizens. We believe that lower-tier municipalities must administer the phase-in program because we're the ones that are going to take the calls from the ratepayers after this is introduced.
We recommend that you incorporate a provision in the legislation to allow the authority to phase in to be delegated to the local level.
We believe that Bill 106 as proposed will ultimately lead to an increase in residential property taxes as a result of the following. The province, as we understand the proposed legislation, will establish the tax ratio bands which limit the extent to which multiresidential, commercial and industrial taxpayers can pay in property taxes as compared to residential taxpayers.
We anticipate that the current ratios in most municipalities will be outside the range established by the province. If this is true, then we expect that there will be tremendous pressure by the commercial-industrial sectors on regional council to drop our ratios within the range. We feel if that is done, there is only one way that those extra costs can go and that is right on to the residential property tax bill.
If the BOT is eliminated, which is something that the town of Oakville agrees should happen, and it cannot be absorbed by the commercial-industrial ratepayers within the parameters established by the province, then surely this will cause another shift to the residential tax base.
Reassessments in our experience generally result in shifts in the share of regional taxes between municipalities within a region. Oakville's share in particular has in general been increasing every time there is a reassessment. We anticipate under the proposed reassessment this year that this will continue.
One final area I'd like to address is the impact Bill 106 has on the business improvement areas. We have two business improvement areas in the town of Oakville and within the region of Halton there are three more, those being in Milton, Burlington and Georgetown. We feel that Bill 106 has the potential to destroy one of the key grass-roots organizations of our community, those being the BIAs.
BIAs help the downtown areas in many communities of Ontario to survive and thrive, but what Bill 106 proposes to do is to eliminate the base on which the BIA levy is applied, the BOT. Currently BOT is applied against the tenant or the operator of the business. Those who pay benefit most from the work of the BIAs, and at present that is the tenant. Those who pay are involved in the administration and the operation of the BIA. If you apply the BIA levy against the property owner, who in many cases is not even an Oakville resident or businessperson, the "say for pay" philosophy will more than likely kick in, which would mean that the property owners would then become the members of the BIA.
The BIAs have held a meeting in the region of Halton, those BIAs, as I said before, being from Oakville, Milton, Burlington and Georgetown, and are extremely concerned. They have requested a hearing, and I understand they could not be accommodated in this round of hearings. However, they have requested that they be heard in Port Colborne. I would urge the committee members, if they have the power to do that, to hear from the BIAs because they are bringing a very strong and sincere message to you.
The Ministry of Finance staff were alerted to this problem and we haven't heard any solutions forthcoming. It's of great concern to our local council. Both the downtown Oakville and Bronte BIAs in Oakville are excellent partners in promoting our downtowns and have assisted in the past to keep both downtowns vibrant. Oakville is proud of our downtowns and they are an integral part of the identity of Oakville. To lose the BIAs as a result of this legislation would be a shame.
I would like to now turn it over to Michelle Séguin, who will close our submission.
Ms Michelle Séguin: Thank you, Councillor Flynn. Mr Chair and members of the committee, it is a pleasure for me to present administration issues with respect to Bill 106. I probably represent other municipal treasurers and their concerns with respect to administrating the change, the current value assessment and the phase-in program.
Probably most of the presentations you've heard so far focus on the negative; it's easy to just bypass the positive. But I'd like to spend a moment or two to indicate what we feel some of the positives are. As was indicated earlier, municipalities have requested that the business occupancy tax be eliminated because it is extremely difficult to administer and often we can't collect those taxes, albeit there are some problems with respect to that. There are some implementation issues, just as Councillor Flynn indicated, such as how you actually levy the business improvement areas levy if it has been applied on the BOT.
As well, I believe that the phase-in program over eight years is a positive move, moving it from the current four years. In certain areas within the province it will require a longer phase-in program in order to implement a current value assessment from the current outdated MVA system in some municipalities. Also, it's a one-time phase-in program, and we agree with that. A phase-in program is extremely time-consuming and difficult to administer so if municipalities know they only have to go through this process once, they will be more than pleased to put it in place.
In Oakville we implemented a phase-in program as a result of the implementation of regionwide market value reassessment January 1, 1996. It's gone smoothly; however, we are feeling some of the bumps and grinds as a result of that, especially now that Assessment Review Board hearings are going on and there are some changes in the original assessment base on which we based the phase-in programs. Some of the taxpayers can't understand at times why they actually owe us money back as a result of getting a reduction in their assessment. Some of these issues the municipalities will have to address in putting together their administration.
Another key area that I believe is very positive is that it simplifies the calculation of the property tax and how to explain to the property taxpayer what their assessment is. Currently the assessment is based on the market value of the property multiplied by a factor. You come up with an assessment number which doesn't really mean much to anyone. Then you take that assessment and you multiply it by a mill rate, which again is a difficult concept to explain. Under the system being proposed, it's the current value of the property, which is $250,000 times a tax rate, which is a lot simpler to understand, which is the actual taxes payable on the property.
As well, there are certain systems that are suggested to be streamlined such as the assessment review process. We agree with that. It will also streamline the farm tax rebate, albeit certain municipalities that have a lot of farm land will be affected by the reduction in the property taxes to 25% of the residential property and it may affect them severely.
Lastly, the effective tax rate becomes very visible under the bill. For the effective tax rate of commercial-industrial, the amount of taxes that they actually pay as compared to the residential property owners was always very difficult to calculate and difficult to explain. In this case we'll be implementing tax rates and it will be very clear how much commercial-industrial taxpayers actually pay, so it makes the effective tax rates visible, albeit it will make the local councils a lot more accountable with respect to how much they are taxing each class.
With respect to getting into the more negative issues and addressing some of the administration that municipal treasurers such as myself will have to address, there are three areas I would like to discuss: the phase-in program; the implementation of the current value assessment; and the information that is required by municipal treasurers and staff to explain to their councils what impact Bill 106 and some of the mega-week announcements will have on their community and their ratepayers.
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With respect to the phase-in program, as Councillor Flynn discussed earlier, we wonder why the authority to implement the phase-in program has been left at the upper tier. We believe there should at least be a provision in the legislation that it can be delegated to lower-tier municipalities. I believe that in some regions it should probably be at the upper tier but in some regions, such as the Halton region where we've just gone through a region-wide market value reassessment, January 1, 1996, based on 1992 market values, local municipalities can handle the phase-in program and the impact will more than likely be a lot less severe than in some other areas.
As well, we are the ones that have to administer it. We're going to have to amend our systems. We answer the questions of the public. The more complicated the policies that are being implemented, if it is done at the upper tier, the more time-consuming and expensive it will be at the lower tier to actually implement.
With respect to other concerns with the phase-in program, obviously we'd like to have some of the information as soon as possible. You've had other presenters here today that would like to see impact studies; so would we. We've had numerous discussions with the staff at the assessment office as to what type of information they will provide us so that we can actually do our work. When we went through the phase-in program and the implementation in 1996, the assessment office gave us a tape just before the new assessment was implemented. We called it a pre-flip and a post-flip.
As the assessment office was actually doing their reassessment, they updated both sets of rolls at the same time so that we could actually compare the tapes, apples to apples, so that if there was an adjustment to be made on a property, it was made on both tapes so that when we did our phase-in program -- the legislation says we can only phase in the amount that the property owner is affected as a result of the change in the assessment -- it's truly just the change in the assessment that we are phasing in, not any supplementary assessment that is being added.
Often what happens with a reassessment is that as the assessors go out and do their reassessment they find new assessment and often they just add those new assessments to the new roll. That is critical because that represents growth for municipalities and it actually translates into pure tax dollars. In these days of zero per cent mill rate change for local government -- in the town of Oakville we've had a zero per cent mill rate change for the last four years -- it is critical that the growth in assessment not be gobbled up, if I want to call it that, in the current work the assessors are doing. They really need to track it separately so that we can know exactly what our assessment growth is.
I must thank the staff of the ministry. They are working with municipal officers from various organizations and have had numerous discussions. However, we haven't had any commitment with respect to a pre-flip, and tracking assessment growth separately has always been a problem. I'd just like to alert you that it is a key issue for municipal government.
Implementation of current value assessment: It was mentioned earlier by some of the members that we have an interim bill that we usually calculate in January and issue in late January. The timing of getting a roll in order to do that right now is very tight and there may be some impact on the cash flow of municipalities. I would just like to request that the government take that into consideration in discussing the timing of these different rolls. The final roll I think has been discussed to be delivered in April and that, again, would make it extremely tight for municipalities to bill their taxes.
Lastly, there is some information that municipal finance officers such as myself really need in order to provide what the impacts are to the ratepayers and to their councils. As well, as was mentioned earlier, we can't determine how much the commercial-industrial taxpayers can or cannot absorb of the business occupancy tax until we actually know what the tax ratio bands are, what the transitional ratios are, specifically those for each municipality, and the educational tax rate.
I believe the objective is that the taxes paid by the commercial-industrial taxpayers before will more than likely be what they are after. However, if that's the case, we need to know how much BOT they can absorb and if any of that will actually have to be transferred to other classes, and specifically to the residential taxpayers.
As well, there are regulations to accompany Bill 106. The sooner we get there and we get those, the sooner we'll be able to really, truly evaluate some of the impacts with respect to assessment.
I believe probably our time is over. We appreciate the opportunity to discuss these issues with the committee today. Thank you.
The Chair: Thank you very much for attending the committee and making your presentation. There are draft regulations available. The clerk has some; if you haven't got them, I'm sure he'd be glad to give you a copy of them.
BRAMPTON BOARD OF TRADE
The Chair: We now welcome the Brampton Board of Trade, Mr Bob Malcolmson. We're very glad to see you again.
Mr Malcolmson: I will be brief so that maybe you can get back on your time schedule. If you don't want to give me the whole 20 minutes, that's fine. I know you want to get back into the Legislature.
Good afternoon, ladies and gentlemen. My name is Bob Malcolmson and I'm the executive director for the Brampton Board of Trade. Just to give you a little background, the board of trade has over 1,000 members and we employ over 60,000 people in Brampton and the region of Peel.
Our purpose as the board of trade is to represent and actively promote the interests and profitability of Brampton business and it's members. We have three major goals, two of which are to build and maintain support for control of taxation and expenditures affecting the tax community of Brampton, and another one is to create an economic environment which is positive and attractive to new and existing businesses.
Today we are here to give you thoughts on Bill 106 and lend support, where appropriate, for the changes outlined in this bill. I can tell you we feel the government is on the right track to get Ontario's fiscal house in order.
Three years ago -- and I've been a couple of times -- the board of trade adopted -- and I've told you this before -- an overall position that any additional government spending at any level on programs must be funded from current budgets by reallocation of funds from existing programs and that the board of trade would oppose additional government spending through increases in taxes at any level. Our position today remains unchanged.
In our letters over the past three years to all levels of government we have advised government leaders to put their financial houses in order and adopt a philosophy of spending fewer dollars than they bring in. It is essential to look at tax reduction and reallocation of funds from existing programs to reduce the tax burden. We would like to commend the government to date for diligently trying to fulfil our request.
The Brampton Board of Trade takes the position that governments municipally, regionally and provincially must be committed to downsizing of government, cost reduction, accountability, less government and the elimination of duplication.
This whole restructuring bill is about taxes and the cost of government to individuals and business. The government must be applauded for proceeding to introduce changes to an outdated tax and assessment system. The government must also be commended for sifting through, embracing and listening to recommendations introduced by the Fair Tax Commission and the Greater Toronto Area Task Force. Like my colleagues from Oakville, I sat through some hearing down at Halton region until the bleary-eyed hour of 2 am. It is very important that this restructuring take place.
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Property tax reform is the single most important problem facing Ontario. A fair, stable, efficient and accountable property tax system is the key to preserving Ontario's long-term competitive nature in this global economy. We feel the government of Ontario, by introducing Bill 106, is attempting to address a number of contentious and complex issues that have been longstanding taxation problems that have plagued previous governments of all political stripes.
We would like to address the following areas we feel need a second look and possibly improvement or strengthening in the proposed legislation.
Property classes: We feel the principle of creating additional business property classes would open the property tax system to all manner of discriminatory practices. For example, in a community where there is one major employer and the remaining businesses are a collection of small retail and secondary support industries, that a provision could be put in place to give the larger employer a lower mill rate, thus causing taxes to rise on all other property classes, including the smaller employers, is a dangerous scenario. Or the reverse: We could see the tax assessment rise on the major employer and lower on the other businesses. This could be enough for that major industry to move out of the community.
A municipal council could use such powers to provide special tax options or incentives to attract a single major employer. It is fundamentally unfair for a municipality to offer lower taxes to newcomer businesses, if at the same stroke of the pen it means to impose higher taxes on competing businesses which may have been providing financial support and jobs to that community for many, many years.
Our recommendation: We caution and feel that the legislation needs to be strengthened in this area to ensure that municipalities should not have arbitrary discretion over the establishment of additional business property classes.
Business occupancy tax: The Brampton Board of Trade supports the removal of the business occupancy tax. The problems with the tax and its makeup are many, and the assessments were time-consuming and a definite tax collection problem for municipalities.
I noticed that in the Oakville presentation they also supported the elimination of the business occupancy tax. However, we feel local councils -- and we're very positive of this -- will fold the business occupancy tax into non-residential property tax, thereby making it an obligation of the landlord to collect. This will cause a number of difficult transition problems, because as you know, business occupancy taxes may vary anywhere from 30% to 50% of the realty tax rate for businesses in the same building. How will this be worked out in order not to have a major impact on small businesses at a 30% rate? I know one of the gentlemen over here mentioned going from 50% down to 42%, and from 30% up to 42%. That is a major concern for the business community.
It can't just be expected that the landlord will be able to pass along a major tax increase to a tenant, because he does have tenant leases and regulations that he's dealing with. Our members are suggesting to us that the change must be fair to tenants, landlords and municipalities, and that if the tax changes were not handled fairly they could have a major impact on small businesses and, in some cases, put them out of business.
Our recommendation: We feel the legislation must be improved to deal with these issues and a mechanism put in place to intervene, where necessary, between the landlords and the tenants regarding a pass-through of any realty tax increases caused by the elimination of the business occupancy tax.
As an aside on the seniors area, I read through the act and the legislation appeared ambiguous with respect to the special treatment for seniors and who will make the decision on what is fair treatment for them. For example, what about a senior citizen on a fixed income who is currently paying $1,600 a year and under AVA this could go up 20% to 30%; or a senior who has been in the same property for 50 years and because the assessor comes along and determines that his property, which is similar in size and location to the property on the next corner which has a condominium on it, could be sold and redeveloped into a condo complex garnering more taxes? I don't know if this could be arbitrarily left to one individual to determine.
Our recommendation: We feel the government must strengthen this portion of the legislation and not leave these situations to chance.
In summary, the business community recognizes that they must pay their fair share of taxes. They also understand that we cannot continue to run on a tax system which is antiquated and does not fit the needs of Ontario going into the new millennium. The government is to be congratulated on having the fortitude and forebearance to address and largely resolve many of our property tax problems. Bill 106 merits widespread support from Ontario's taxpayers, as the legislation will result in a significantly improved property tax system in Ontario.
Thank you for your time. If there are any questions, I will try and answer them for you.
Mr Phillips: Thank you for a thoughtful presentation. I appreciate it. I want to start on the possibility of creating additional business property classes. That's a fairly important issue for the committee because the government has indicated that they are going to bring in some companion legislation in the next few months to allow that to happen. I think we've had probably about six or seven different business groups here advising us on this and all of them agree with you except -- I'd have to review the Hansard -- it seems to me that the chamber of commerce this morning had a slightly different view on it. As I listened to them I thought they had a slightly different view.
Mr Malcolmson: Which chamber?
Mr Phillips: The Ontario chamber, but I may have misheard them. It's an important point, and I was interested. CFIB had the same recommendation as you did, and that is to not permit additional commercial classes. Can you expand on that -- I know you've got it in your brief here -- just to help us a little bit on your concerns if that were allowed to happen?
Mr Malcolmson: Mr Phillips, what I said was that by creating additional business property classes, taxes could open up to a manner of discriminatory taking of action. I don't think a municipality should just arbitrarily be able to make up these classes. It should be legislated so that it is controlled right across the province. Otherwise it comes down to a community where a special-interest group could take control of the situation and take advantage of a municipal council. If you're going to have property tax classes, it should be legislated by the province, not arbitrarily determined in each municipality.
Mr Phillips: That's interesting, because the others felt as a matter of principle that just because you have a small business selling jeans, as one group said, a small store, or a larger store selling blue jeans, they should have the same tax rates. But you wouldn't have a problem if there was a different tax rate for those two retail stores based on size?
Mr Malcolmson: It depends on the site. Right now, you've got the zoning structures and the tax structures so that a box store can come in. Or, for example, let's take downtown Brampton: You had a hardware store that had a certain tax base. Down the street five blocks, because it was zoned industrial, the same size of hardware store was at a lower tax rate. Is that fair or is that not fair? I think you have to look at that structure and put it in place so that it is fair for all who are involved. Of course, then you get into the levies and the business taxes on BIAs and so on and so forth. You have to be very cautious on how you come out with these property classes, specifically for businesses.
Mr Pouliot: Thank you on several fronts, Mr Malcolmson: for your time, your thoughtful presentation and your good optimism vis-à-vis the future.
On the one hand you applaud the government for its endeavours and on the other hand you plead that property taxes not be increased, that the difference between the savings under BOT will be compensated either by increased assessment or by municipalities tightening up their belts and operating more efficiently.
You also, I take it, assume that this is a revenue-neutral endeavour, which it isn't. It cannot be. The government does not deny that. There's a discrepancy.
The town of Oakville -- and I thank you, Madame Séguin. Madame Séguin works the books. She knows what takes place: money coming in and out. Oakville, Mr Malcolmson, is not a poor community. It is one of the wealthiest communities, not only in Ontario, in all of Canada. They have increased assessment, not unlike Brampton, not unlike Oshawa. They've got those giant plants in Oakville, which is not exactly the same situation, but the BOT, suffice it, will cost $16 million in revenue.
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Oakville, your predecessor as a presenter, says: "Look, there is no possible way we can enact $16 million of new efficiencies or collect $16 million of assessment, so if the bottom line remains the same and we provide the same service, we're going to have to pass that $16 million, if we can't find a wrinkle to go and hit the majors, to commercial and residential."
If they say this with all their strength, their prominence, can you imagine what other municipalities in the province are saying, whose shoulders are not as broad, when they see all that flow of downloading and they're saying right at the beginning: "Some 50% of yesterday's tax levy, the new costs starting in January; I can't go to my final levy before August. Who's going to pay for the interest rate for the money borrowed to render the new services in January?" Their fiscal year starts three months after. Those things have to be addressed and reconciled in the real world, because bankers, like it or not, charge interest rates even to municipalities.
Comments, please. I don't have answers because I don't have the information. It's locked in some vault. It's a secret of the highest order and only a privileged few have access to the information that I need on a daily basis to do my job. I'm suffering, sir, and I need your help. What am I to do?
Mr Malcolmson: I guess I need a bit of clarification, because I heard their presentation and I don't know where the $16 million came from. Was this to do with the business occupancy tax?
Mr Pouliot: Yes. Mind you, there might be a distortion. Not a number, because it's unusual. They have those. The square footage is immense. It takes on extraordinary proportions. The cost there is $16 million that they have to make up someplace.
Mr Malcolmson: So when the business occupancy tax comes off in Oakville, they're losing $16 million and they're not going to try and find a way of recouping that by going to the landlords and asking them to pay that and have them go to the tenants?
Mr Pouliot: Yes, but in this case the landlord might be exempted because it is so big and their criteria are this narrow. It's much easier to take a sidecar or a sideshow and hit the small or middle-sized ones.
Mr Malcolmson: I live in Halton region and I can assure you that the region of Halton and the municipalities in Halton will certainly come up with a way of not losing $16 million. They've never lost yet and I don't think they will in the future.
Mr Jim Brown: Nice presentation; nice to see you here again. The business occupancy tax reflects the difference in the size of businesses. If that comes off, there's no reflection taxwise in the size of business. I don't totally understand what you're saying when you talk both of the property classes and the business occupancy tax. We'd be removing a benefit, I guess, for small business, but are you suggesting that we may give that back to small business, only the province would set that class up as opposed to the local municipality? I'm having trouble understanding.
Mr Malcolmson: You've got a certain number of property classes there, and my reading and the way I understand the legislation is that the municipalities can come back, that there can be different classes set up over and above that in case you happen to have a different type of property or business you want to tax. I don't think it can be left up to the discretion of a municipal government or council to do that.
In regard to the second part, the business occupancy tax coming off, I don't think there's any business in Ontario that believes that occupancy tax is going to come off and they're going to save 30% on their taxes. I think they understand full well that there's going to be a restructuring of that and it will be put in place and the municipalities will collect it through realty tax only, so now you're not paying two taxes, you're paying one tax.
The concern our members have is that they could be in the same building as another operation; they're paying 30%, the other operation is paying 75%. Mr Phillips raised the point that when the landlord takes over, he can't go along and say to the small business person, "You're now at 50%," because that could put that small business person technically out of business. I think the government has to look at that and say, "What is going to be fair?" We understand there's got to be a change, but we have to know what's fair and appropriate.
Mr Jim Brown: So you're suggesting that the government, not the municipality, set up a separate rate or a separate class for small business?
Mr Malcolmson: But then you're getting into more bureaucracy trying to figure out what that is. I don't know how you're going to do it. That's why I said it's got to be clarified.
Mr Jim Brown: But if you don't do something, you're taking away a benefit that small business enjoys through lower occupancy tax.
Mr Malcolmson: That's right. You're going to have to do something.
Mr Jim Brown: The second thing is that you mentioned seniors. You're suggesting that we do something about the problem with seniors.
Mr Malcolmson: The residential property tax, yes.
Mr Jim Brown: You're suggesting that we do it, not the municipality. I think that's what I read in your recommendation. What would you do?
Mr Malcolmson: Again, I guess the concern I have is different strokes for different folks. Because I happen to live in Halton Hills -- I live in Halton Hills, not Georgetown; I just wanted to clarify that for Hansard -- could I be treated differently than if I lived in Oakville just because I have the same property? Or maybe it could come down to the municipal level, where I don't particularly get along with the municipal treasurer. Does that mean I get a different read on it than if I'm somebody else? I think it can't be left up to the discretion of an individual to determine.
When we went through the MVA fiasco at Halton region, and there were hundreds of us in the room, I remember one gentleman standing up. He made the comment: "I've lived in Oakville for 45 years. I bought my house at the corner of whatever and whatever, and it was a big property." The tax assessor came along, looked at his property and reassessed it, and his taxes would go up $8,000. From $7,000 they would increase $8,000 more. The point was, the tax assessor looked at his property and said, "Well, down the street that same-sized property was sold and redeveloped for a condominium development, town houses, and this is what they pay, so therefore this property is the same."
The individual happened to be a doctor, albeit he had been retired for 15 years. If you go back 15 years, incomes and so on and so forth were different, but because he had the foresight back in the early 1930s and 1940s to buy a property, it comes down to the point now where somebody arbitrarily is making a decision that this is what it's worth now.
We could go on for days about UVA, MVA and AVA and never come to a conclusion. The question is, we have to do something, but I caution, we have to be fair.
The Chair: Thank you very much, Mr Malcolmson. We appreciate the Brampton Board of Trade coming in and making a presentation to us today.
DEER PARK RATEPAYERS' GROUP
SUMMERHILL RESIDENTS' ASSOCIATION
The Chair: We now have the Deer Park Ratepayers' Group, Ms Packer. I understand you'll be sharing some time with the Summerhill Residents' Association, Mr Bossons. Welcome to the committee. Would it be fair to say that the Deer Park Ratepayers' Group will go first?
Ms Katherine Packer: Thank you for permitting us to share our time with John Bossons. We have planned on making a joint presentation, so I will begin.
Professor Bossons and I have another similarity besides both being in ratepayers' groups: We both have members of provincial Parliament who made promises in their election campaigns that never, if they were in a government of which they formed a part, would they introduce market value assessment.
I'm assuming that other presenters have made the case that market value assessment is what current value assessment is -- in other words, things that are equal to the same things are equal to each other -- and so I'm not going to take time to expand on that. But if Bill 109 is passed without any changes, without any amendments, it is only going to reinforce the feeling among our electors that politicians are not to be trusted, because this bill does implement precisely what we feared when we feared MVA.
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I am going to take a moment to remind people present of the disadvantages of MVA. First of all, it is very costly to implement and to maintain. It's volatile and it's the volatility that most people fear. It's the only tax where an investor is unable to predict in advance what his taxes will be. And it is unfair. In point of fact, it is grossly regressive because poor people have a much larger proportion of their net wealth in their properties than wealthy people. For people who are very rich, only a small portion of their wealth would be in their property. For people who are on moderate income, it represents a large amount.
Some of our neighbours moved into our areas a long time ago. They moved in at a time when they could afford their homes and they expected to be able to afford the taxes for as long as they wanted to live there. The increase in taxation will be a violation for them of their trust in the situation. Some of our neighbours bought their homes more recently, and they paid prices which reflect current tax rates. Telling them that they must face a capital loss on their investment because their taxes will be increased is patently unfair.
The government has committed itself to introduce MVA. If it cannot be persuaded to change this decision, we believe the government has a moral obligation to mitigate the unfairness of the consequent tax change. Market value assessment should be implemented in a way that will minimize its volatility and its unfairness. This means the implementation issues and transition issues become absolutely critical to the process.
The government should also put a high priority on minimizing the subsequent volatility of taxes based on market value once the 1998 reassessment has been implemented. We will deal with these issues in turn, first dealing with the implementation. I now pass this chair and microphone over to John.
Mr John Bossons: We've got a lot of suggestions to make, dealing first of all with implementation in 1998 and secondly with the volatility problem to which Katherine spoke. Let me deal with those in turn.
We start off looking at what's going to happen in 1998 from two perspectives, first recognizing that, especially where properties haven't been reassessed for a long time such as in Toronto, there will be huge shifts in taxes, huge changes. The example that was quoted a few minutes ago about the property in Oakville was a good example, taxes going up from $8,000 to $15,000. This kind of change is inevitable when reassessments haven't been done for a long time and when you bring in a new tax regime.
Second, it's not only going to be that the tax changes will be large, it's also going to be that many of them will be wrong. I say this meaning no disrespect to the hard-pressed staff of the assessment division who are trying to implement this. The reassessment that's going to take place, four million properties in Ontario, is the largest single reassessment that's ever been done at one time in North America. It's a very, very large job to do and it's almost impossible for that to be done well within the time and budget that's available.
That means I think that the government has to plan on there being a lot of errors and, as a result, there being obviously a lot of unhappiness, and especially a lot of unhappiness if transition provisions do not try to mitigate the effect of that.
We make several suggestions. In section 5 on page 3, we suggest a less ambitious goal for the 1998 reassessment. Here what we want to say is, the job is major. What a business would do confronting a job of such magnitude is to try to phase it, put it in phases so that the phases are each manageable. We suggest that a manageable phase for 1998, especially with respect to small businesses and the residential farm class, is to focus on coming up with realistic average values per square foot of houses, small businesses, farms in an area, and then apply those average values per square foot to the gross floor area of the properties.
In other words, not try to make assessment exact on a property-by-property basis, which requires, to do it well, inspections, careful analysis, much more analysis than the assessment division is likely to be able to do in the time that's available. We suggest simplifying it, a simplified scheme for 1998. We suggest that actually would have merit going beyond 1998, but even if the aim is to go to full "attempted perfect" market value assessment in subsequent years, we think that as a first phase it makes sense to think in terms of a simpler system. So that's point number one.
Point number two in section 6: We emphasize the need for a gradual decision. Here the key I would like to stress is the fact that this is something that we think has to be a provincial responsibility. It makes no sense, in our view, to regard the appropriate transition provision as something that should be decided by a local council. You'll see that in many respects we actually share a number of the same concerns about leaving too much up to local councils that the Brampton Board of Trade expressed to you just a few minutes ago.
We believe that key issues of assessment policy and of the implementation of transitions, including the definition of special classes etc, all of those things should really be a matter of provincial policy and decided by the province. They should not be left as a matter of local option.
We suggest a particular form of an eight-year transition which would be in our view simple to implement by simply each year adjusting taxable assessment so that the difference between current value as currently appraised and taxable assessment -- that one sixth of that be added to the taxable assessment in each year, and we just keep on doing that.
Where there is an assessment appeal, recognizing that there will be many errors and that I think at least in the first year one has to give the benefit of the doubt to the appellant until the appeal is dealt with, we propose that tax increases not be payable until and unless an appeal is denied. In other words, the cash-flow problem of financing a tax increase should not be borne by the taxpayer if, on appeal, that tax increase is subsequently reversed.
We suggest proposals for additional relief for seniors and the disabled. Again, the basic point we want to make is that whatever they are, they should not be a matter of local option, they should be uniform across the province. Indeed in this respect we commend to you the BC scheme, which essentially has the BC government acting as a banker, providing loans at a rate of interest that's based on the long-term government borrowing rate, regardless of income or anything else, to seniors and the disabled; no means test, simply an automatic ability to get a loan from the provincial government that's a lien on the property and that is repaid when the property is sold.
We suggest again that should be a provincial plan, not something that varies from municipality to municipality. There's no reason why, in equity, somebody living in Halton should face any different access to relief provisions than somebody living in Toronto or somebody living in Orillia.
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Turning to non-residential assessment, I want to make the point that we believe very strongly in the need for a special class for small neighbourhood businesses. It's not so much small here, it's the neighbourhood businesses. This is something which we believe can be defined. Indeed, some of us had discussions with staff of municipal affairs and treasury a couple of months ago about this at the time this was being considered by the Crombie task force. It's implementable and it should be implemented by the province based on definitions that can be implemented using data already available to the assessment division. We think it's essential that this be done in order to try to minimize any negative economic consequences upon local merchants of reassessment.
We also believe that assessment, especially non-residential assessment, should be based on value and current use. The proposed law, Bill 106, provides that this can be done on a basis of local option. We believe again that's something that should be a matter of provincial policy. In other words, there is no reason to have inconsistent appraisal techniques for the commercial properties across the province. Like the Crombie task force, we recommend value and current use because we believe that to be the best way of getting consistent assessment across the commercial class.
Right now, large commercial office buildings, commercial malls etc, are assessed on the basis of a capitalization of rents; that is to say that in fact they are valued on the basis of their current use because they're already viewed as being developed to their highest and best use. Small businesses are assessed on a transaction basis and we've seen too many examples, the 1988 and 1984 assessment studies in Metro Toronto being good examples, where there's huge volatility, shifts between one component of commercial properties and another precisely because they are being assessed on a different basis.
We believe that a requirement for assessing all properties on the basis of value and current use gives you consistency and reduces that kind of arbitrary, unpredictable shift. We believe it also makes sense on the grounds that the purpose of the tax really is, especially to the extent it's paying for municipal services, to pay for municipal services that are used by the current use. So it makes good sense from a philosophical basis to assess on the basis of value and current use.
With respect to the business occupancy tax, we support its elimination but recommend that the manner in which it's financed again be at least in large part mandated by the province. You can see there's a very consistent thread here. We think that all of this stuff is your responsibility, not the responsibility of local councils.
We propose that business realty taxes initially be raised sufficiently to cover the cost of getting rid of the low rate of business occupancy tax, with the cost of the remainder being spread over all taxpayers in a municipality. We make a technical point here which I won't go into concerning the way in which this affects these contracts, which is in our brief.
Turning now to volatility, let me just make the point here, first: Volatility is a serious problem. You only have to look at what's been happening in Vancouver where in five out of the last six years it has been necessary to put caps on tax increases of different types, some years residential and some years commercial, in order to keep tax increases on a year-to-year basis down below 15% for individual properties. This is after a three-year averaging rule is applied.
Volatility is a serious problem, so if you don't anticipate it in advance, there's going to be huge political costs when this comes in. Three-year averaging isn't enough. We suggest that where averaging is the technique that's used, it should be the same kind of eight-year averaging that's proposed for the initial transition. We suggest to just adopt something that makes sense for dealing with the initial shifts and continue that.
Secondly, we also suggest that this is a place where value in current use is particularly important. Changes in assessment should be limited to changes that arise from changes in value in current use. We recognize that's difficult to implement correctly for residential properties, for a whole variety of reasons. There is just not the rental rate around to make that feasible.
We suggest that in the residential and farm class, a special provision be used to deal with volatility. In that class, we propose a California-style scheme where you base assessment on either previous taxable assessment, or in the case where you've had a reassessment, like in 1998 or in subsequent years, base it on acquisition cost. What that means is that you would --
The Chair: Could I ask you to summarize in about a minute, please.
Mr Bossons: Yes. What that means is that you would use a California-style limit on the extent to which you get unanticipated increases. We think the merit of the California proposal is that when people buy a house or farm, they buy it knowing what the taxes will be because they will be based on the market value that's established by their purchase.
Our general conclusion: You've got serious problems, ladies and gentlemen, and we urge that you give consideration to the kinds of suggestions we're making.
The Chair: Thank you very much. We appreciate the Deer Park Ratepayers' Group and the Summerhill Residents' Association for your presentations to us today.
PAM MCCONNELL
DENISE REDWOOD
PAUL BARBER
The Chair: We now welcome Councillor Pam McConnell from the city of Toronto, Ward 7. I understand that you will also be sharing your time with the Old Cabbagetown Business Improvement Association, Ms Redwood and Mr Barber.
Ms Pam McConnell: Yes.
Mr Pouliot: Mr Chairman, do you believe Madame Packer or Al Leach? I believe Madame Packer.
The Chair: Welcome to the committee. You can appreciate you are the last presentation of the day so it's the --
Ms Pam McConnell: Oh, maybe I should make you stretch first, then.
The Chair: We've reached that time of the day when Mr Pouliot's sense of humour is running wild with us. We're all looking forward, of course, to going back into the House.
Ms McConnell: Thank you very much. After such a technical presentation, I hope you'll enjoy our presentation, which comes very much from the community that we serve.
Chair and members of the committee, I'd like to introduce my two constituents who will be sharing this time with me. I am from Ward 7, city of Toronto, a downtown neighbourhood that includes a diverse community such as St James Town, Cabbagetown and Regent Park. Denise Redwood, who is on my right, is a business owner and a member of the Old Cabbagetown Business Improvement Association, as well as, of course, a community resident. Paul Barber, on my left, is also a local resident and in addition is a real estate agent. I thought you might like to hear about our community from both of those different views, as well as my own view as their representative.
"Slow down and get it right," is a refrain that you have heard before, I think, and will hear again. It applies equally to this Bill 106, as well as to the megacity legislation and other bills before the Legislature affecting school boards, municipal downloading and so on.
It is hard to conceive of the cumulative effects in my community if all of these bills are implemented, but it is clear that almost no one knows what these effects will be. I am particularly concerned about maintaining the health of our urban neighbourhoods, and especially inner-city neighbourhoods with mixed incomes like Ward 7 in the city of Toronto. The uncertainties and the multiple changes occurring simultaneously for our small business operators, especially the street-related retail stores and restaurants, create a terrible climate for business. I thought the Mike Harris government was supposed to be about supporting those kinds of business communities.
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In my presentation I will comment on the issue of fairness; on the issue of reassessment time constraints; on the need for amendments incorporating the value in current use, as you heard before in the previous presentation; and the impact on our small business community.
First of all, on fairness: Much has been said by the government representatives and the Toronto media about how unfair the current assessment system is because it has not been updated consistently in Metro. I don't know anyone who thinks the current system is fair or is up to date, but updating everybody's assessment at exactly the same time has nothing whatsoever to do with the question of fairness. If the assessment was based on the ancient practice of the number of glass windows in your house, or as in Charleston the number of doors going out to the sidewalk, we would probably think of that as very unfair, but at least it would be consistent and updated if done at the same time this year.
The primary reason previous governments did not act in Toronto, in my view, or indeed to revise the entire system province-wide, had to do with trying to work out a system that was more fair than the current market value system. The previous government's Fair Tax Commission attempted a serious analysis of the unfairness of the market value-based system. They demonstrated that the effects of market value assessment are distributed randomly, not fairly, across property taxpayers. As you heard from the city of Toronto's Assessment Reform Working Group yesterday, this proposed current value assessment is just market value assessment with a new name, in our view.
In other words, Bill 106 does not seek to deal with the challenging questions of fairness, but rather substitutes simultaneous updating using the current methodology and hopes the resulting confusion will deflect any calls for serious overhauls. The destabilizing impact of this update, however, will be serious for many of our neighbourhoods in our large cities, and it should never be underestimated.
Real estate in large cities is volatile over time and in different areas and in different classes of property on a scale that is never experienced by slower changing towns or smaller cities. This is why there was such a groundswell of opposition in Metro and in this particular city to the last attempt on MVA. I'm sure you all recall, and will hear during these hearings, what happened at that time.
This is why both the Golden commission and the Crombie Who Does What panel recommended changes to the assessment methodology that tried to mitigate some of that unfairness. For example, the Golden commission tried to separate location and land values from house pricing for buildings of the same size and features. I may not have agreed with it all, but at least it was an attempt that will not be made with the current slapdash, do it in a hurry with temporary staff approach taken by our provincial government currently.
Crombie placed great emphasis on ensuring the assessment was to be based on the value of the property in its current use. This has not been provided for in Bill 106, and as we speak to assessors anyway, they are still out doing the same old thing.
Inner-city areas like mine suffer from a phenomenon of being close to higher-valued land, yet trying to maintain their mixed-income character. Apart from social housing and high-rise private sector rental housing, ward 7, as you probably know, has many houses owned by the same low- or moderate-income households who have lived there for decades right next door to houses that have recently been renovated and upgraded by middle- and upper-income households. Although all of these houses are on modest-sized lots, compared to, say, Rosedale or the suburbs in Metro, and use land and city services in a less costly, and efficient, manner, they will be highly taxed because of their proximity to our very downtown. The modest income homeowner in Cabbagetown can expect to be taxed today as though they have already realized the higher resale value that may not occur for many decades.
The reassessment time constraints: I was shocked to read the submission made to your committee on Monday by two assessors who have worked for years in the Ontario government's assessment division. They said there is not enough time or trained people to do the reassessments province-wide. They cited the use of temporary and untrained personnel to do the reassessments. I am also aware of the length of time British Columbia took to get it right.
The unrealistic timetable set by the provincial government is causing this problem. I fear that in my community, too little time and too little experience by assessors may result in many inappropriate assessments.
Will the small houses that have not been renovated and are closer to the corner where the drug dealers ply their trade be assessed at the same level as the renovated house with the addition in the centre of the block? Will the small retail shop in the unrenovated building on Parliament Street just a few yards away from the preferred pedestrian route be assessed at the same rate as the recently upgraded building, for example, with the trendy restaurant a little closer to the intersection and the foot traffic? I would submit that both of these errors are more than likely, given the haste of this reassessment.
Since the legislation has not been approved, how can the assessors be doing their job, and what guidelines and regulations are they following? Please, slow down and do it right.
Assessment value in the current use is my third point. We remember all too clearly in the last battle against MVA the examples of little bakeries and little convenience stores being hit for huge tax increases because somebody else a block away or so sold a building and someone had redeveloped and intensified the use of that lot. The little bakery was assessed as if it were about to sell off to a developer and cease to be a bakery.
It is common in our city for zoning policies to encourage intensification, while at the same time the city retains site plan control to ensure appropriate intensification. This does not mean that every little store on every block should expect to be redeveloped, nor should this zoning policy be interpreted to mean the city doesn't want second-hand bookstores and small bakeries and shoe repair shops to exist cheek by jowl with trendy restaurants and upscale clothing stores. Diversity of retail as well as mixed-income housing is something we cherish in Ward 7. Tax policies should not force out our little guy.
No market-based assessment system should proceed that does not have written into the legislation the guarantee that properties will be reassessed based on their current use. Time enough if a property is ever redeveloped to charge the higher property taxes then. Anything less would seriously destabilize the healthy urban downtowns and liveable residential neighbourhoods Toronto is famous for worldwide. Slow down and let's get it right.
Fourth, small business: My co-presenters will add their examples to my thoughts. In addition to the comments I have made about small retail businesses, let me point out that most of my ward's neighbourhoods, and indeed like many in the city of Toronto, have a Main Street of retail. Perhaps the contribution this has made to the vibrant neighbourhoods of large cities like Toronto has really been unappreciated.
Assessed value based on current use is probably the single most important guarantee that many small retail streets require. In the context of the hastily reassessed system that Bill 106 mandates, the abrupt removal of the business occupancy tax will add further uncertainties and wild tax shifts to an already unpredictable property tax.
Most small businesses, including retail, are assessed a business occupancy tax at a much lower rate than our big financial institutions and banks, and if the municipality redistributes the business occupancy tax across the whole commercial and industrial base, almost certainly small retail will see a very big tax increase.
Putting the flexibility of a separate and a lower-assessed category of small retail into the power of municipalities only begs the question of timing. What time will there be for the city to understand the implications of all the other tax changes so that it can properly plan for phase-in periods and the replacement of the business occupancy tax and so on? Will it have time to consult? What city are we talking about, anyway? The entire municipal governance infrastructure in Metro is up in the air at this very time.
If this government cared about predictable expenses for small businesses, it would not try to change everything all at once before anyone has even had a single impact study. I would ask you once again, please slow down and get it right.
Denise, did you want to add something?
Ms Denise Redwood: My name is Denise Redwood. I have a very small business. It's actually a used book store. I still believe that people read and read for pleasure and that we can survive without being on the Internet.
I was downsized 10 or 11 years ago, one of the first in the group out of the television industry. I had two choices: become a politician, which didn't appeal; become a small-business owner, because at my age, I'm not going to be re-employed no matter what my skills, my brain, my anything.
I became a small-business owner. I was renting a property for four years. Dreadful landlord. I had saved at the time I was working, scrimped and saved as I was taught to do by my parents. I always say I was born into the wrong generation because that's what they taught me to do as a good citizen.
I paid off my mortgage at my home. Instead of a nice letter from the chairman of the board of the bank, which I thought I would get for being a good citizen and doing this, I got a bill for $150 for tax for the disbursement of my mortgage.
In the business, I thought the best thing to do would be to buy a property. This would be something controllable. One is supposed to plan in business. I bought a property in 1989. I did not pay the mad rates that were going then in the hot spots. The business is in Cabbagetown on Parliament Street.
I have somehow managed to survive six years of depression. Some people call it a recession; I call it a depression. I live on probably what you would spend on lunches. I live for a year on what you may spend on lunches if you're frugal. I pay my taxes on my home. I've never been behind. I have only one bill in the world, and that is the mortgage on my property, which was with a trust company which went under. I was disowned by the big banks who are now saying, "We are being very kind to small businesses." I don't believe it.
I expect from my government that in working, and I'm getting very nervous now, in working hard all my life and in not complaining and in not dipping into the public pot, that I will be able to retain a home over my head, that I will be able to keep my business going. Small as it is, it adds to the flavour of my neighbourhood, and neighbourhoods are what Toronto is all about. I will be able to keep my building and pay all the expenses on it.
If this bill goes through -- and I fought very hard against MVA and I went down to Metro Hall and made a presentation there -- I will lose my building. My business is so marginal, which you can say shouldn't be, but show me one business in the small retail industry that is not marginal at the moment after six years of a depression, my business will close, my building will be gone, I will not be able to pay the taxes on my house. I probably won't get a buyer for my building, because commercial in Toronto, particularly in downtown Toronto, small commercial buildings, took the brunt of the real estate crash that occurred. We haven't come out of it. Houses are starting to; we haven't.
I also will probably not be able to sell my house, because people will not buy a house when they do not know and cannot plan ahead for their expenses, of which taxes are a major expense.
If you put this bill through, I've had it, and I want you to remember my face when you go to vote on this bill, every one of you. I'm not pleading. I'm not crying. I'm saying I'm trying to work, I'm trying to retain my dignity, and I do not think this government was elected to throw me in the street. That's all I have to say.
Ms McConnell: Could Paul make a couple of comments? He's a seller of property.
The Chair: Could you keep your comments to about a minute? Thank you very much.
Mr Paul Barber: I guess I've come to two words; balance and equilibrium. On Main Street, which is Parliament Street and our cross-sections, over time the stores evolved and there was balance and there was equilibrium. Times changed, the equilibrium changed, and then we had people coming in and you would hear people on the streets say, "How many pizza stores can you have? How many dollar stores can you have?" That's the front of Cabbagetown. Behind it is a wonderful, vibrant residential area. The residents are the ones who walk to the street, who know the shopkeepers, who have dialogues, who ask how their children are doing and the grandchildren and so on. The residents are concerned not just that their taxes on their homes are going to be raised significantly, but they're concerned about what is going to happen to our shopping street, our friends.
As Denise has said, the margin is slim. A lot of people who lose their jobs think first and foremost: "Well, I'll be self-employed. I'll start my own business." We see a lot of that on Parliament Street, energetic people coming, spending their last penny for stock, and the community supports them and goes behind them. I'm fearful for those people because their margin is so minimal that any slight change -- we're not just talking about a tax change here, we're talking about other impact factors too, but it doesn't take much to put them out, and that person is a family and they are our friends and our neighbours.
It's really important that you consider how you affect small business. It's really crucial. Small business is the backbone and the focus of residential areas. We happen to live in a very vibrant residential area.
I just make one other comment. You were talking about assessment, and my concern is that assessment is done fairly, and when I say fairly I mean onsite assessment, not the drive-by situation. I say that just from my own business experience with mortgage lenders.
As we became very active in 1987 through 1989, the lenders slipped on how they approved properties, and then when the market fell, the lenders had all these homes overpriced, huge mortgages, couldn't clear them out. The point is that if the mortgage lenders had not just the drive-by, but a walk-in, really did see what the lender was putting his money down against, we wouldn't have had quite as disastrous a situation. My concern is that the assessment done for taxation purposes be also onsite, so that we don't have neighbours complaining to each other, asking, the intrigue that does go up and down community streets.
The Chair: Thank you very much for taking the time to make your presentation to the committee.
Ms McConnell: I appreciate the extra time.
The Chair: We have come to the conclusion of our agenda today and this committee stands adjourned until 10:00 tomorrow morning. I would ask the committee to be prompt again yet tomorrow.
The committee adjourned at 1709.