PROFESSIONAL ASSOCIATION OF CANADIAN THEATRES
N0N-PROFIT INTERNATIONAL BRIDGE COMMISSIONS
ONTARIO GRAPE GROWERS' MARKETING BOARD
INDEPENDENT POWER PRODUCERS' SOCIETY OF ONTARIO
CONTENTS
Monday 20 October 1997
Fair Municipal Finance Act, 1997 (No. 2), Bill 149, Mr Eves / Loi de 1997 sur le financement équitable des municipalités (no 2) Projet de loi 149, M. Eves
Ministry briefing
Mr Tom Sweeting, acting assistant deputy minister, office of the budget and taxation
Mr Bill Wong, manager, tax design and legislation branch
Ms Elizabeth Patterson, assistant deputy minister, property assessment division
CN Rail
Mr Brad Searchfield
Mr Ron Ditchburn
Ms Sandra Wood
Railway Association of Canada
Mr Bob Ballantyne
Mr Ron Ditchburn
Professional Association of Canadian Theatres
Ms Pat Bradley
Ontario Grape Growers' Marketing Board
Mr Jim Rainforth
Non-profit International Bridge Commissions
Mr Ronald Lampman
Independent Power Producers' Society of Ontario
Mr David Kerr
Mr Bud Carruthers
Mr Harry Goldgut
Buddies in Bad Times Theatre
Ms Gwen Bartleman
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
CHAIR / PRÉSIDENT
MR TERENCE H. YOUNG (HALTON CENTRE / -CENTRE PC)
VICE-CHAIR / VICE-PRÉSIDENT
MR WAYNE WETTLAUFER (KITCHENER PC)
MR TED ARNOTT (WELLINGTON PC)
MS ISABEL BASSETT (ST ANDREW-ST PATRICK PC)
MR JIM BROWN (SCARBOROUGH WEST / -OUEST PC)
MR MONTE KWINTER (WILSON HEIGHTS L)
MR GERRY PHILLIPS (SCARBOROUGH-AGINCOURT L)
MR GILLES POULIOT (LAKE NIPIGON / LAC-NIPIGON ND)
MR E.J. DOUGLAS ROLLINS (QUINTE PC)
MR WAYNE WETTLAUFER (KITCHENER PC)
MR TERENCE H. YOUNG (HALTON CENTRE / -CENTRE PC)
SUBSTITUTIONS / MEMBRES REMPLAÇANTS
MR TOBY BARRETT (NORFOLK PC)
MR ED DOYLE (WENTWORTH EAST / -EST PC)
ALSO TAKING PART / AUTRES PARTICIPANTS ET PARTICIPANTES
MS MARILYN CHURLEY (RIVERDALE ND)
MS FRANCES LANKIN (BEACHES-WOODBINE ND)
MR MARIO SERGIO (YORKVIEW L)
CLERK / GREFFIÈRE
MS ROSEMARIE SINGH
STAFF / PERSONNEL
MS ALISON DRUMMOND, RESEARCH OFFICER, LEGISLATIVE RESEARCH SERVICE
The committee met at 1006 in committee room 1.
FAIR MUNICIPAL FINANCE ACT, 1997 (NO. 2) / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS (NO 2)
Consideration of Bill 149, An Act to continue the reforms begun by the Fair Municipal Finance Act, 1997 and to make other amendments respecting the financing of local governments / Projet de loi 149, Loi continuant les réformes amorcées par la Loi de 1997 sur le financement équitable des municipalités et apportant d=autres modifications relativement au financement des administrations locales.
MINISTRY BRIEFING
The Chair (Mr Terence H. Young): The standing committee on finance and economic affairs is meeting this morning to hear delegations on Bill 149. From 10 until noon, we have three people here from the Ministry of Finance to give us an overview and to answer questions. I'd like you to please identify yourselves for the record.
Mr Tom Sweeting: Good morning. My name's Tom Sweeting. I am acting assistant deputy minister, office of the budget and taxation, Ministry of Finance, and director of the taxation policy branch.
Mr Bill Wong: Good morning. My name is Bill Wong. I'm a manager, tax design and legislation, Ministry of Finance.
Ms Elizabeth Patterson: Good morning. My name is Elizabeth Patterson. I'm the assistant deputy minister responsible for the property assessment division, Ministry of Finance.
The Chair: Please go ahead.
Slide presentation.
Mr Sweeting: You have in front of you a presentation which I will go through with assistance from Bill and Elizabeth, to simply bring the members' attention to the elements of Bill 149. The starting point is a quick summary of Bill 106, the Fair Municipal Finance Act, which received royal assent on May 27, 1997.
It was essentially the foundation for the new assessment system and the tax options for municipalities. It contained a number of the basics for reminding the committee, which included regular or annual assessment updates using current value assessment; the use of rolling averages; municipal power in setting variable tax rates; specified classes of real property for all properties; elimination of the business occupancy tax; measures related to phase-ins of changes in assessment-related tax; property tax relief for low-income seniors and/or low-income disabled; the requirement for designated airport authorities to pay grants in lieu; and also streamlining of the assessment appeal system.
Bill 149, the Fair Municipal Finance Act, 1997 (No. 2), builds on the reforms that the Fair Municipal Finance Act brought into place. The bill ensures fair treatment for seniors and the disabled, farms, small business and other commercial and industrial properties. It continues to focus on more flexibility for municipalities to respond to local priorities. The measures in this bill, coupled with the reforms in the Fair Municipal Finance Act, create a new property tax system that is fairer. Some examples of what happened are:
Bill 106 provided property tax protection for low-income seniors and disabled. The bill extends those deferral and cancellation provisions to include the school portion of property taxes.
Bill 106 also eliminated the business occupancy tax. This bill allows municipalities to set tiers of tax that will allow for lower-valued commercial properties to be taxed at a lower tax rate.
Objects of Bill 149 also include assisting charities and similar organizations by allowing municipalities to offer tax rebates when they occupy commercial property; allowing owners of vacant land and buildings who have incurred no business occupancy tax to retain similar treatment; providing exemptions for small live commercial theatres. Large live commercial theatres and not-for-profit public theatres are granted more consistent tax treatment. International bridges and tunnels are put on a level playing field.
The major provisions of the bill include the creation of subclasses of existing property classes to provide tax reductions for farm land pending development, vacant land and vacant units and excess land. A subclass can also be created for certain live theatres in the new city of Toronto.
It provides for the revaluation of managed forest and conservation lands which become ineligible for the special tax treatment; it mandates municipalities to give tax reduction benefits to subclasses; it permits municipalities to establish a rebate program to give tax relief to charities and similar organizations occupying commercial or industrial property; it provides assessment exemptions for bridge and tunnel structures and rights of way; for exempted bridge and tunnel structures, it allows for prescribed special payments; it also permits the prescription of a tax rate per acre by geographic area for calculation of taxes on rights of way; it would allow the revenue from the gross receipts tax to be paid to the province; it provides for the prescribing of the sharing of payments in lieu of property tax; it also rewords certain exemptions to clarify their meaning.
Focusing on the main provisions of the bill in a little more detail, it deals with farm land pending development. The property tax treatment for land being farmed pending its being farmed development is going to be changed. The proposal is for a staged tax approach that balances the goals of preserving farm land, encouraging bona fide farming and ensuring reasonable and appropriate municipal contributions. The mechanism is to create subclasses of property so that farm land can be revalued at its current value and then taxed at varying rates at different stages of development.
Bill 149 initially indicated that the structure would be prescribed in regulation. Amendments that have been proposed to Bill 149 and released by the government indicate that there will be included in the act definitions at what point land can no longer be valued as farm land, including when a draft plan of subdivision has been approved, an approved plan of subdivision has been registered or a building permit for non-farm-purpose structures has been issued.
It allows the creation of up to three subclasses of farm land awaiting development instead of the originally contemplated one or two subclasses. It also replaces, as I said, the regulatory power with the legislated reductions, indicating that the tax rate for the first subclass can be between 25% and 50% of the tax rate otherwise payable. For the second class, it can be between 25% and 75%. For the third subclass it would be between 25% and 100%. The range allows for a municipal decision as to the appropriate rate of tax.
Bill 149 also deals with vacant commercial or industrial lands. It proposes that a lower tax rate would apply to vacant units and land and excess land that are in the commercial and industrial classes. This recognizes that pre-reform, these types of vacant land and vacant units were assigned to the lower residential tax rate and there was no business occupancy tax charged. Without the changes in Bill 149, that would have meant that these vacant properties would be paying tax at the full commercial or industrial rate.
The proposed amendment moves from regulation into legislation the tax rate for vacant land and vacant units and excess land. It sets that rate at 70% of the rate otherwise payable in the case of the commercial class, and 65% in the case of industrial land.
Bill 149 also focuses on charities and similar organizations occupying commercial or industrial property. Once again, in the pre-reform system these types of properties were afforded a special recognition. The owners of the property were taxed at the residential rate and as well there was no business occupancy tax paid by the tenants.
Similar to the previous issue of vacant land, once the new system is in place, these would be taxed at the commercial rate. So the bill provides for a rebate that allows municipalities to provide to the charities and similar organizations a reduction in tax directly. This rebate will be applied for by the municipalities and it will apply to both municipal and education taxes.
Once again, released amendments that will be proposed would affect the way Bill 149 deals with charities and similar organizations. Moving from regulation to legislation the ability of municipalities to provide these rebates to the eligible charities, it sets that the rebate can be up to 40% of the taxes otherwise payable.
It indicates that "charities" are defined as "registered charities" for the purposes of the Income Tax Act. It also gives municipalities the power to include "similar organizations," as specified by bylaws they would pass in order to provide for the tax rebate. It indicates that if a municipality has a program, the amount of rebates must be the same for all the organizations. The cost of the rebates that are given will be shared with the upper-tier municipality and school boards.
Bill 149 deals with rights of way. Rights of way owned by railways or utilities will no longer be assessed but will be taxed at a rate per acre. This Bill 149 proposal means the taxes paid by railways and Hydro after reassessment are appropriate and it cushions the impacts on municipalities affected. The amount of tax will be shared with the upper-tier municipality in the same proportion as other commercial taxes are.
Ontario Hydro rights of way used as a transmission or distribution corridor will be treated similar to utility rights of way. The corporation will pay to the municipality a payment in lieu equal to the taxes.
The amendment that has been proposed to be brought forward related to the treatment of rights of ways is the creation and the definition of nine geographic areas in which tax rates would be set for each of the areas, for railway and Hydro rights of way purposes.
Bill 149 also brings forward the previous government announcement that there would be an opportunity for municipalities to adopt tiered commercial tax rates in order to provide potential reductions for lower-valued properties. Upper-tier municipalities may establish two or three bands of assessment and municipalities may then decide at what rate they want to set those bands and at what rate they want to tax them, subject to certain restrictions in terms of the overall treatment of the commercial tax class.
There's also power that the municipality may prescribe additional conditions such as the level of bands in relation to one another and permissible tax rates.
As far as the gross receipts tax, another item that was included in Bill 149: Telephone and telegraph companies have been paying gross receipts tax, which is a tax based on the total revenue arising from telephone calls, rentals and the use of equipment, for a number of years. Under the existing system, this is a tax that is raised and distributed to the municipalities on the basis of the distribution of the rental phones of the telephone and telegraph companies.
Mr Gerry Phillips (Scarborough-Agincourt): What page are you on?
The Chair: Mr Sweeting, I'm actually having a little trouble following you. Could you please let the committee know when you change pages?
Mr Sweeting: I will; I'm sorry.
The Chair: We're listening to you and we're trying to follow your point form at the same time.
Mr Gilles Pouliot (Lake Nipigon): It's not a compliment that we're following you. We have to --
The Chair: See, you live and breathe this all day every day. But if you could do that, and also --
Mr Phillips: You're keeping the opposition off guard.
The Chair: If you could please let us know when you change pages. Actually, if you could slow down a little too, it would help a little bit, I think.
Mr Sweeting: I could do that.
The Chair: Does everyone have a page 14? I think we can go ahead.
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Mr Sweeting: I accept that very good advice, and unfortunately it's not the first time I've ever heard it. I will attempt to bear it in mind.
Slide 14 is where we are now, if everyone is on that page. To recap, the gross receipts tax is a tax that's paid by telephone and telegraph companies doing business in Ontario. It's distributed according to the phone rentals to the municipalities. As part of the Who Does What fiscal swap, the government determined that the revenues from the gross receipts tax would accrue to the province and would not accrue to the municipalities. The bill ensures that happens and it also provides the power for the Minister of Finance to determine the rate of tax that should be payable under the gross receipts tax.
Moving to slide 15, payments in lieu of taxes: Section 149 indicates that provisions of the Municipal Act authorizing heads and beds institutions to make payments to municipalities are changed. It allows the Minister of Finance to prescribe new rates. It also allows that the prescription of rates would continue in the event that an institution such as a hospital closes. Until such time as it would be changing use, it's appropriate to do so.
It also allows the Minister of Finance to determine the appropriate means of sharing of payments in lieu among the municipalities and school boards. While it's not noted here, a draft regulation has been released that actually sets the prescribed heads and beds rate at $75. Just for clarity of the committee, "heads and beds" is a catch phrase used to refer to institutions such as hospitals, schools and jails, where the payments are made at $75 per person or per bed that the institution has.
Slide 16: There's a reference to the impact of 149 on statutory exemptions. A key change here is that property held in trust for an Indian band is being removed from the Assessment Act. This does not affect Indian property on reserves, which continues to be exempt from property tax through federal legislation. However, it does recognize that obsolete and unclear language of the exemption provisions has led to confusion in court decisions, which have extended the original intent of the legislation. This is desired to clarify that, so off-reserve businesses that are competing with non-native-owned businesses will be on a level playing field. However, organizations that currently benefit from this off-reserve treatment will continue to receive that benefit until such time as the use, ownership or occupancy of the land changes.
Slide 17 deals with private and public live theatres in Metro. Bill 149 provides an exemption for eligible small theatres. It allows the minister to create a subclass of the commercial class for eligible theatres in the new city of Toronto. It requires large public theatres in the new city of Toronto occupied by for-profit production companies to make municipal payments in lieu of property taxes.
There have been some amendments proposed that would be brought forward and released that relate to the treatment of theatres. It removes the regulatory power, and instead inscribes in the act the definition of "eligible small theatre." It also removes three other regulation-making powers and inscribes in the act that tax-exempt large live theatres in the city of Toronto, which are predominately used for for-profit live productions, shall make prorated payments in lieu.
It also allows that municipalities can reduce the payments in lieu by any amount of subsidy that is paid by the for-profit production to support other productions or not-for-profit activities that take place on that site. So there were a number of regulatory powers previously in 149 that are being proposed to be covered by amendments to 149.
In terms of international crossings, to provide consistent tax treatment for all international crossings, the international bridge and tunnel structures are exempted from taxation but will be subject to a special payment prescribed by the Minister of Municipal Affairs and Housing. Land and buildings of bridge and tunnel operators in the immediate vicinity of the crossing are liable for municipal taxes but will not be liable for school taxes. The International Bridges Municipal Payments Act, 1981, is repealed as part of this policy change.
To provide consistency with municipalities on the American side of the bridge, the legislation provides for tax adjustments so that, in any year, the total property taxes paid to a municipality on the Canadian side are not less than those paid on the American side of the bridge.
Bill 149 also deals with the situation of where eligible managed forests and conservation lands change their use. This is on slide 19. In order to encourage the retention of land in managed forests and conservation, a tax recovery facility is proposed in 149 that allows going back four years to recapture taxes because the use of what had been otherwise conservation or managed forest land has changed. The assessor is directed to reassess and reclassify the land under this provision. This recognizes that the former rebate program had a 10-year clawback where lands ceased to be eligible, where you were able to go back under the rebate programs and recapture up to 10 years.
On page 20, the issue of how 149 deals with transition ratios for municipal restructuring: The minister will prescribe transition ratios that have been required under 106, which is the way in which the starting point for the property tax reform tax rates will be determined. There is a need to have special recognition for transition ratios where municipal restructuring takes place. The provision allows for the blending of tax ratios and it also allows the Minister of Finance to ensure that municipal restructuring results in a balanced sharing of tax liability. It's essentially a policy change that's designed to make sure that in amalgamation there isn't a result that sees the shifting of taxes on to what are already unfairly high-taxed classes.
There are a number of technical and consequential changes as well. I'm going to ask Bill to go quickly through those -- not too quickly, though -- for the committee's knowledge, and then we can take questions.
Mr Wong: On page 21 are the technical and consequential changes. The first one is repeal of apportionment where there is multiple occupancy. This is repealed because of the elimination of the BOT. Also, because of the elimination of the BOT, we don't have to assess against the tenant, but it will be assessed against the owner. Included in the package of amendments, we're providing that these two changes do not come into effect until proclaimed by the Lieutenant Governor. This would maintain the current practice of apportionment and assessing each tenant until the Education Act is changed.
On page 22, we're further protecting low-income seniors and low-income persons with disabilities. This would extend to the payment of school taxes.
The valuation of municipal public utility land: We're eliminating the valuation according to the immediate vicinity, so they can be valued according to the type of property that is being used by the public utility.
The next one is separating the farm lands and managed forests property class into two classes. This is strictly technical, because of the fact that they are two separate classes.
Page 23: Notice the corrections. This allows the supplementary assessment to be issued a subclass. Also, in-year where assessment or classification is changed, the owner will be notified. The owner will be required to notify the tenant where there are any in-year changes.
The assessment of crown lands, just to clarify that: If you're a tenant on land owned by the crown, you will be assessed as if you are an owner, so therefore they will get an assessment notice. For example, where you're a tenant of an airport authority, you will get a notice.
The second point is that if you're an owner of land that is rented to the crown, that portion that is rented to the crown is treated like any other taxable tenant.
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Page 24, school support designation: This allows the commissioner to prepare the roll, to identify those properties and owners and to allow them to designate their school support. The proposed changes will direct the commissioner to show the school support on the assessment roll.
Migration of services: The tax billing that's currently being done by the lower-tier municipality may be moved to the upper tier, based on a section in the Municipal Act.
Page 25, upper-tier interim instalments of the property tax: This provision would allow the Minister of Municipal Affairs to vary the percentage limits on the interim payment which is at the beginning of the year. A separate proposal is also available for the upper-tier municipality.
The Assessment Review Board change on section 414 of the Municipal Act is just to allow the appeal of the apportionment of taxes among parcels. It also deletes references to the OMB, because the ARB will be the final court.
Page 26, the last page, is interim local levy. Again, it's to ensure that the 50% limit applies and it also provides that the Minister of Municipal Affairs can vary that amount for 1998.
That is the presentation.
The Chair: Are you going to use the overhead projector for your presentation?
Mr Sweeting: We don't need it now.
The Chair: You were just going to use it for this?
Mr Sweeting: Yes. We've done the presentation. We'd be happy to use it if we were referring back for the committee's benefit, if that would help.
The Chair: We had allotted 20 minutes per caucus for questions. What we'll do is start with the official opposition now, we'll do 20 minutes each, and if there's remaining time and there are remaining issues, we'll carry on accordingly.
Mr Phillips: Can I make a different suggestion, Mr Chair? I think we've got 90 minutes left. Can we do 15 minutes each? I'd like to ask some questions, gather my thoughts and then perhaps ask some additional questions. Could we go around once at 15 minutes and then just start around again, if that's permissible?
The Chair: Is that agreed? Agreed.
Mr Phillips: Thank you, committee, and Mr Chair.
I don't think we've ever been asked to approve legislation knowing as little as we know about how it's going to impact. It is a complete mystery how this thing is going to finally impact on real, live taxpayers, the hardworking people. But that's the way the government wants it and that's how we have to deal with it. I find it unfortunate. I think we're going to find hundreds of thousands of people say, "How in the world did this happen to me?" I gather you still don't to date have any indication of how this is going to impact on anybody.
In terms of questions, the first one I'd like to figure out is the variable rates on commercial properties. I think small businesses are going to be dramatically impacted by this. Small businesses that may be operating in large buildings, that have a small business occupancy tax -- it's gone. Can you give me some comfort that if I'm operating a business and I'm renting facilities in a very large building, how my property taxes are going to be cut with this?
Mr Sweeting: The cut in property taxes under the proposal for tiered rates will relate to the value of the property. If the overall value of the property in which the business is located exceeds the thresholds, the property will not benefit from the reduced tax rates. If it's a large building with a very high value that has a small business tenant located in it, the provision wouldn't apply in that particular case.
The provision was geared to focus primarily on the small standalone retail properties that have tended, under previous attempts at reform, particularly in the Metro Toronto area, to face a lot of taxes -- the Danforth strip, the Bloor strip, those kinds of things. There's an ability for municipalities to respond to that with the particular circumstance you raised. As I said, it depends on the value of the property. If the value of the property is beyond the tier, then ultimately that will not be of benefit for the tenant in the process.
Mr Wong: The tiered tax rate will affect that lower portion. Of course, the higher portion of that property will be affected with the higher tax rate. So in the end, it probably balances to one tax rate for the large building.
Mr Phillips: So anybody who's in business, even with a small, little business, but renting space from a larger facility, is not going to see much benefit with this.
Mr Sweeting: The tiered proposal relies on value, so a large property with a high value will not receive a benefit of the lower tier.
Mr Phillips: What's in the legislation here on the value of properties that we're talking about? How will this be tiered? What are some of the numbers?
Mr Sweeting: That's the choice of the municipalities. It's the municipal determination at the upper-tier level what the tiers are and what the distribution of tax rates would be within those tiers.
Mr Phillips: Just give me an example. I live in London. Tell me how this is going to work.
Mr Sweeting: I don't know. I can't say what choices the municipalities would make, but a hypothetical example would be a municipality could choose to say that properties with a value of less than $50,000 and properties with values of less than $100,000 are going to receive lower tax rates, and then they would determine what tax rates would be applied to those values, subject to the overriding consideration that all the taxes in the commercial class are still subject to transition ratios and ranges of fairness. So the choice of the three rates should raise an amount of taxes in the first instance that does not result in an overall tax increase on the commercial sector.
Mr Phillips: I just smile to myself, wondering if anybody understands what you just said there.
The legislation will give each municipality unfettered rights. They can set it at $50,000, $500,000, $5 million? What about the ratios they can set?
Mr Sweeting: The governor on the municipal ability to select rates and ratios at this particular point in time is that the overall amount of tax that's paid by the commercial class in this particular municipality you're talking about -- to continue with the hypothetical example, if they set it at $50,000 and the tax rate was 5% and between $50,000 and $100,000 it was 7% and above $100,000 it was 10% -- I'm just making up those particular numbers -- the total amount of tax raised from that structure cannot exceed what the transition ratios would say the commercial class should pay. In other words, the amount of tax that's there now is the starting point for the commercial class.
It's just a recognition that in trying to provide relief for small business, the end result shouldn't be a shift in taxes from other sectors on to the commercial class, where that class is an already highly taxed class of property. That's the only restriction on municipalities, and it's the upper tier that has the power to determine this.
Mr Phillips: The biggest tax on business, that rate will not be set by the municipality; that will be set by the provincial government.
Mr Sweeting: Are you talking about education?
Mr Phillips: Yes.
Mr Sweeting: Education will be set by the province, yes.
Mr Phillips: That's over half of the property tax on business. Am I correct there?
Mr Sweeting: It varies from municipality to municipality, but I think across the province it's slightly over half.
Mr Phillips: It's about 53%. I'm trying to get an idea of how this will work. The province is collecting 53% of this. Has it stated how it's going to set its rates? Because if they're saying, "We just want a certain sum of money. We don't care how you get it," then presumably on things like the ratios you just talked about in the commercial, they'll just send a bill to the municipality and say, "Give us our money." Is that the expectation?
Mr Sweeting: The rates have not yet been set for commercial and industrial property, nor has the structure of the rates been set. Bill 160 is dealing with the tax-setting power for education.
Mr Phillips: How will that be set, then?
Mr Sweeting: The government has yet to determine exactly how it's going to determine commercial and industrial tax rates, but once it does determine what that rate is, the municipality will set the relevant tax rate for the commercial-industrial property and the money will be forwarded to the school boards. That's the structure of how the tax rate works on the education side. It's not yet determined what exactly the rate of tax will be in the various municipalities.
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Mr Phillips: How will that be determined? That's 53% of how much we're raising from the property taxes. Will that be subject to municipal councils approving it?
Mr Sweeting: No, it will not be. The province will set that. Right now, Bill 160 provides the power for the Minister of Finance to determine the tax rate that will be applied for education -- rate or rates.
Mr Phillips: That will be submitted to whom for approval, the Legislature?
Mr Sweeting: Right now the power is in regulation for those taxes to be set, and Bill 160.
Mr Phillips: How will the property taxpayer have any say in that, then?
Mr Sweeting: The property taxpayer will have a say through the provincial government. It's a provincial source of revenue, as a result of the changes they brought in, so the same way the taxpayer has a say with respect to any proposal on a provincial tax.
Mr Phillips: Is this the first time the provincial government has directly set a property tax rate?
Mr Sweeting: I believe so. It happened in unorganized areas, the provincial land tax.
Mr Phillips: Are there any legal impediments to that? I always thought property tax rates were set by the municipalities.
Mr Sweeting: No, there's no legal impediment.
Mr Phillips: That's a legal opinion?
Mr Sweeting: Certainly the legislation has been introduced with no indication that there's a concern about the ability of the province to determine tax rates. I'd have to get someone else to have more discussion on that. That is a 160 discussion, although I'm sure you can relate it to 149. But if you want to pursue that more, I would prefer someone else to answer that.
Mr Phillips: I wouldn't mind, because I had in my memory that setting property tax rates was a municipal responsibility, but now the province --
Mr Sweeting: It's a municipal responsibility, but it's created by provincial statute that allows for it. In that sense it has always been a provincial responsibility that has been delegated.
Mr Phillips: To change the subject a little bit, the deferral of taxes on seniors, persons with disabilities and -- was there another group in there?
Mr Wong: Low-income people.
Mr Phillips: Yes. Is that a deferral, or will low-income people have a permanently lower tax?
Mr Wong: It is a tax relief program that can be a deferral or a tax cancellation or any other tax relief, that will be determined by the municipality.
Mr Phillips: So if I'm the municipality, I can say low-income people have a lower tax rate?
Mr Wong: You can defer it or you can write it off or cancel it, or you could have a lower tax rate if you wanted. But it's a tax relief program that they can have.
Mr Phillips: Does this commit the province to match it? Because the province is also getting 25% or 26% of the residential.
Mr Wong: Indirectly it is, because Bill 149 captures the education portion that can be deferred or have tax relief.
Mr Phillips: My worry would be, can you assure us the province won't simply say: "We want to raise $2.5 billion a year from educational and residential property taxes. You give a cut there and make it up elsewhere"? Or is the cut coming right off the $2.5 billion?
Mr Sweeting: I'm not able to answer that question, not necessarily because I couldn't give assurances, but the government has said that it's intending to raise $2.5 billion out of residential education tax rates, setting them at 50% of what used to be raised in revenue. But the rates have not yet been set. The government will make decisions around setting the rates and determining the amount of money that's raised and will have to take into account an issue like the one you have raised.
Mr Phillips: What I'm getting at is we're being asked to approve this bill, and based on the answer you just gave me I'll assume that if a municipality said, "For people with low income in our particular community, we're simply going to give them a lower tax rate," the province is saying, "You do that, and you make it up on the rest of the residential property taxpayers."
Mr Sweeting: Yes, certainly that's an option in terms of determining what the rate will be. It will take into account what is the composition of the $2.5 billion.
Mr Phillips: It's not an option if the province is saying, "We are going to tell municipalities in this province we want X amount of money." If the municipality says, "We're going to give low-income people a break," the province says, "You do that; make it up on others."
Mr Sweeting: If the province is setting a uniform rate for residential purposes province-wide -- that has been the proposal; it hasn't yet said what the actual rate is. The rate will be the same in every municipality, in every part of the province, according to Bill 160. So the ability to do that is substantially circumscribed to go into a municipality -- we don't have the authority to tell them what to do with their tax under the act. The government will be able to indicate a rate of tax for education, it will set it and that will be the amount of money that's raised. What will be taken into account in setting that rate is, as a minimum, the government has indicated $2.5 billion is the intention to raise, because it's planning as part of the Who Does What swap to raise 50% of the current education tax revenue.
Mr Phillips: I've looked at the uniform mill rate on multi- and single-family. If the province is saying, "We're going to raise $2.5 billion," it looks to me like there's probably about a $300-million shift from multi-res to single-family properties.
Mr Sweeting: Actually, I don't have a number with me on the size of the shift. It is a number that you've asked and we are developing, but in principle, a uniform rate that treats res and multi-res will have the effect of shifting taxes that are currently paid by multi-res, which are substantially higher, typically, than taxes paid by residential.
Mr Phillips: It's $300 million, right? I'm just trying to get an idea of how much -- the province has said: "We want $2.5 billion. We're going to have a single rate." It looks to me like within that $2.5 billion, $300 million goes from multi-res over to be raised on single-family residences.
Mr Sweeting: I'll have to get you an answer on that. I don't have an answer with me .
Mr Phillips: What is the reason on the first nations issue of eliminating --
Mr Sweeting: -- the off-reserve division?
Mr Phillips: Yes, the off-reserve.
Mr Sweeting: The intent of that change is to recognize that where native-owned corporations located off-reserve are in competition with other types of businesses, there will be similar tax treatment. It's a change that I think Ontario is the last province to eliminate. It's the provision that led to what has been argued to be a questionable extension of the provisions of the federal legislation to allow this exemption to take place, so we're simply getting in line with what all the other provinces are doing, that ensures that the property tax treatment eligible for natives is the treatment on the reserve.
Mr Phillips: The payments in lieu of taxes, does this impact at all on any of the federal government payment in lieu of taxes?
Mr Sweeting: Yes, it impacts. Property tax impacts on the federal government payments in lieu in the sense that those payments in lieu could change as assessment changes and municipal tax changes or responses to that work their way through the system. In terms of the treatment of federal PILs, there's a provision in here that allows the minister to determine the appropriate sharing of the federal money between lower tier, upper tier and school boards.
Mr Phillips: Why would you have never mentioned that in here? I've never seen -- or did I simply miss it when we were going through it?
Mr Sweeting: It was on page 15 of the slides.
Mr Phillips: I don't see the word "federal" in here at all.
Mr Sweeting: It's not. Sharing of payments in lieu encompasses the federal government as well. Payments in lieu are paid by the federal government as well as other entities.
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Mr Phillips: So in a place like Ottawa, which I gather currently gets substantial payments from the federal government, the minister will now give himself the authority to determine where that money goes?
Mr Sweeting: That's correct. Ottawa is an example where there are substantial federal payments in lieu that are currently not, for example, distributed to school boards, if I'm recalling correctly. That's a particular area where there's an issue.
Mr Phillips: The word "federal" had never come in. I guess you just assumed.
Mr Sweeting: I did; I'm sorry. I apologize for that, if that wasn't clear enough. It includes federal in terms of payments in lieu.
Mr Phillips: The whole bill is extraordinary in that the devil is in the regulations. I've never seen where the government has given itself the authority to set $6 billion worth of property tax by regulation. On page 12, there's the word that the minister will set the "appropriate" rate, I guess -- yes, "ensure that the taxes paid are appropriate." I gather the minister makes that determination. What is the reason why this is essentially taxation by regulation?
Mr Sweeting: The reference to the $6 billion, of course, is again Bill 160. That's the source of the government's power to levy education taxes for provincial purposes. I think you will see that there has been a response by the minister through the draft amendments that have been released and would be proposed that would move some of the matters -- I did mention those in my briefing -- from the regulations to the legislation, to ensure that as many matters as possible are dealt with.
One of the reasons why there are regulatory powers is that in order to set tax rates we need to have relatively final or else final assessment data. That data is not yet available. It will be available relatively shortly, it is anticipated. So the power allows the minister to take into account the next round of assessment data and to determine those tax rates. There are obviously a variety of regulatory powers associated with many statutes, but certainly in terms of setting the tax rates -- you referred to Bill 160. Part of that is a recognition that until we have more up-to-date assessments, we cannot finalize what the tax rates will be.
Mr Phillips: So it is because we don't have the up-to-date assessments?
Mr Sweeting: That's one of the reasons, yes.
Mr Phillips: Then why wouldn't we make it for this year only we'll do it this way, and then do it in some more public way in the future?
Mr Sweeting: That's certainly an option, Mr Phillips. Perhaps the committee will entertain that as something. It's an option, just do it one time and then in future years require it to be done in legislation.
The Chair: Mr Phillips, earlier, when we agreed to the time changes, I may have misunderstood. I apologize if I did. I thought the committee had agreed to 30 minutes per caucus.
Mr Phillips: I thought it was 15, 15, 15.
The Chair: Okay, I apologize. You've now had 20 minutes. Would the committee agree to go 20, 20, 20 and then 10, 10, 10?
Mr Phillips: It doesn't matter to me. Or you can just give us 10 at the end, either way.
The Chair: How do you want to handle it?
Interjection: Anything to accommodate you.
The Chair: Do you want to complete that thought, or should we go to the NDP caucus now for 20 minutes?
Mr Phillips: Go to the NDP caucus.
Mr Pouliot: I certainly welcome the opportunity, but more importantly, Mr Phillips was on a roll, trying to get answers for, if not all, most members of the committee vis-à-vis not only this -- because 149 does not work in isolation. Both have been kept in the dark. I was expecting that we would spend some time this morning, Mr Chairman, on reviewing impact studies that you must have in your possession, in your hands at this time, because when the rubber hits the road, when it hits the street in the real world, that you profess to know, Mr Deputy Minister --
Mr Sweeting: Not quite.
Mr Pouliot: How will it impact? When will implementation take place? Give me a date on 149, and please don't tell me the platitude of "When it receives royal assent."
Mr Sweeting: I can't predict when Bill 149 will be passed. Clearly, that's at the wishes of the House. The intention is to have the new property tax system effective for 1998.
Mr Pouliot: January 1998.
Mr Sweeting: That's correct. It is anticipated that there will be some decisions. Municipalities are not required to finalize some of their elements of it until into 1998, because interim billings will carry the system through into the early part of the year.
Mr Pouliot: Thank you. Such a wise person at such an early age.
So you won't pass the threshold that says: "Depending. We cannot anticipate what the Legislative Assembly will do." Here is what they shall do: They will move time allocation, in other words, a gag order, closure. They will make sure that at the of the day the majority shall have its way. They have been somewhat consistent in doing this.
We're not expecting that many more amendments on 149, so implementation takes place in January. You've mentioned the word "interim." So municipalities will take the general purpose of the previous year and go to the full limit of 50% to generate some funds for January, February, March until they strike the final levy. Is that right?
Mr Sweeting: That's right.
Mr Pouliot: The assessment tapes -- and I understand there are some 3.7 million or 3.8 million units being looked at, being assessed. It's also my understanding that it's the largest undertaking of this kind in North America, so it is vital, if not to set the tax rate, certainly to know where the dollars are going to come. You have to mesh, you have to blend, you have to web 149 with the tapes coming out. Am I right?
Mr Sweeting: That's correct. The assessment information is needed in order for municipalities to make the decisions they need to make and for taxes to be assigned.
Mr Pouliot: I see. So April 1, April 30, May 31, when will the --
Ms Patterson: Information will be available by late January on individual properties. Individual property owners will get a notice of assessment that tells them the value that has been placed on their property beginning at the end of January. The mailing will begin at the end of January. At the same time, municipalities will get a copy of the tape that's used to produce those notices, so they'll know what the values of individual properties are and they can start to make decisions around phase-in, for example, of some of these other alternatives that are available to them, like tiered tax rates.
There's a period between January and the beginning of April when there will be lots of opportunities for individual property owners to meet with assessors and review the values that have been placed on their property, so we can ensure that they understand and believe we've got the values right. Then we'll produce assessment rolls. It takes about three weeks to produce them, so at about the beginning of April we'll produce final assessment rolls that reflect any changes that have been brought to our attention by taxpayers across the province and deliver final assessment rolls to municipalities before or on April 30, and they can use those for their final instalment billings after they've set their final budgets.
Mr Pouliot: You see, Elizabeth, what concerns me -- not me so much as many, in fact most people -- is that as you move to your fair taxation, to 149 implementation, proposed in January, you also have a massive assessment and reassessment. At the same time you have new responsibilities for municipalities, which is a devolution from the powers of the province and the new responsibilities of the municipality. All this -- and it is consequential indeed, impacting -- is happening at once. When we ask questions on any one of those particular endeavours -- and people mean well -- we fail to be able to give answers that are substantial.
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For instance -- I know it's not related to you -- I just finished a week in the north, where I met with some reeves, mayors and their council members and asked them candidly: "You're less than two and a half months before devolution. How are you doing on policing? What will the cost be?" They said: "We do have the cost here. The province says the OPP costs so much." I said: "How will you pay the police people in January? Will you be billed directly? Do you have a contractual arrangement with the OPP? Do you have a choice to go outside the OPP?" Let's keep in mind that those are people who have served well for a number of years, so they know the territory, they know the way small-town politics works.
Then you turn around and you ask about the drug formulary. You see, the billing among doctors in the past month, month and a half, has gone up. It's pretty difficult to go to a doctor's office without coming out of there with a prescription, so the prescriptions, the drug program, has gone up also. Add to it the demographics. Now you're picking up 50% of the welfare of these social assistance people. Some of them didn't even know that.
Then we talked about ambulance services. They go and see the upper tier, and they've got three bases, three small municipalities. I find it difficult that at this stage of the game -- when I say, "kept in the dark," this is the kind of scenario we've had. At this time, we should know. You would not, you three, and others, conduct your individual businesses this way. It would be impossible. You wouldn't wish to, because this is consequential.
So I'm to depend, Elizabeth, on the interim tax levy to carry me until June? And the interim tax levy is 50% of general purpose. What am I going to do? Am I going to beat a path from the municipal office to the chartered banks? Where's the money going to come from to pay for all this?
Okay, rights of way. You have designated, I think it's eight or nine regions.
Mr Sweeting: Nine.
Mr Pouliot: Within that convention, each region will be assessed so much per acre. So in our special part, the assessment per acre vis-à-vis rights of way would be the same in Thunder Bay, Sudbury and Manitouwadge, right?
Mr Sweeting: I don't know whether those are all in one region, but assuming they are, then the tax that would be paid per acre would be the same in all those three.
Mr Pouliot: But with respect, Tom, it's vast and magnificent; it's huge tracts of land here. If you only have nine regions, we assume that some of those regions will be very large, geographically speaking. The true value of a right of way can differ greatly within the same region, yet it's the same price per acre. Is that what you call fair?
Mr Sweeting: I think the government's proposal is that it's reasonable and fair to try to treat rights of way in a way that's more consistent than the current up-and-down, all-over-the-place, unexplainable kind of system that exists now, as it moves from municipality to municipality. Certainly there is an argument that nine regions is a fairer way of taxing than the hodgepodge that exists now.
Mr Pouliot: You should lighten up, with respect, because you don't really believe in this, when you say "fair." But then again, I don't blame you. I know from where you must come. You see, every bill that we're presented with starts -- they have a choice. They put all the bills in two hats. One says "job creation" and the other one talks about "fairness." The bill is three pages long and the regulations are 56 pages long, but then we don't have access to those regulations. Almost inevitably, it gives a lot of power to the commissar -- I mean to the minister. They've given themselves a lot of power.
Native Canadians: Am I right that if they are off reserve, first nations have ABC company, and they conduct businesses outside the reserve, the municipalities will now have the opportunity to levy them, to tax them?
Mr Wong: No, they are grandfathered.
Mr Pouliot: They are grandparented.
Mr Wong: Yes, the ones that currently exist are grandparented. So only new ones.
Mr Pouliot: The bogeyman is a bogeyperson, in our caucus. Can you imagine that?
In other words, they're grandparented. What if tomorrow the same first nation opens a business? You've just said it: They would be liable to taxation, would they not?
Mr Sweeting: Off reserve.
Mr Pouliot: Yes, off reserve. Of course, if one is grandparented, you can't have it eight different ways. Okay. So those who are already in business will not be retro and they will not be taxable in the future?
Mr Wong: As long as it's still held by the same organization, doing the same thing.
Mr Pouliot: Mr Phillips mentioned the business occupancy tax. I want to come back to Toronto. The bank towers benefit. On the business occupancy tax, their rate is reduced significantly, right?
Mr Sweeting: Banks currently pay one of the higher rates of business occupancy tax, yes.
Mr Pouliot: They pay 75% on the rate, on the formula, don't they?
Mr Wong: The bank tower itself many times consists of tenants who are not banking institutions but other small businesses, so they do not, as a tower itself.
Mr Pouliot: Forget about the banks. Let's enlarge it and say large industrial. It could be a car plant in Oshawa. They will benefit greatly by the reduction in the BOT, right?
Mr Sweeting: Again, industrial properties paid a higher rate of tax, so assuming that the municipalities recapture the same amount of money, yes.
Mr Pouliot: So the province will dictate or set the education levy.
Mr Sweeting: Yes.
Mr Pouliot: You've indicated that grosso modo, in many cases, 50% could be an acceptable figure, anywhere from 40% to 60%. The remaining portion goes to cities, towns. Will the municipalities have the ability under 149 to establish a subclass tax levy to make up the difference vis-à-vis the large industrial? Will they have that ability? What revenue they will lose under the BOT, will they be able to establish a subclass to go and pick that levy up?
Mr Wong: Under the current situation the municipality may set a tax rate that will recover any or all portions from an individual business class. So if they were losing 60% of the BOT from the industrial class, they can still set a tax rate that will capture it from the industrial class.
Mr Pouliot: So they still have the ability to determine the mill rate, industrial, so they'll just adjust the multiplier. Is that what you're saying?
Mr Sweeting: The intention is that it will be moved from a tax on tenants -- the municipality will have an opportunity, if they wish, to recapture that tax from owners. The structure of property tax reform and the transition ratios will allow them to replicate the current situation, if that is where they want it as a starting point. It will also allow them to move and shift taxes between classes of property. But they could conceivably recapture from the owners of the property the tax that's currently paid by tenants.
Mr Pouliot: So hypothetically, or really not so hypothetically, a municipal government that obviously needs revenues could say, "Okay, the province has decreed under 149 that you save so much money under the business occupancy tax, but we will adjust the mill rate -- we have jurisdictional capacity to do that -- and recoup the exact number of dollars under the industrial tax"?
Mr Sweeting: It's possible, yes.
Mr Pouliot: It will be done. Stay tuned. I'm sure the presenters in the next four days will tell us about their fear. So there are really no changes there. It's either that or I pass it along to Ms Jones and Harry Smith, who are single-dwelling.
Mr Sweeting: There is an opportunity. For some municipalities, that will be the opportunity they face, to replicate the existing distribution of taxes between classes, or to determine that some of it should go from, for example, commercial on to residential. For other municipalities that are within the ranges of fairness, that the government has yet to determine, they may have an option to shift taxes from the residential class, potentially, on to the commercial class.
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Mr Pouliot: Do you have an impact study?
Mr Sweeting: I do not have an impact study. The information that's available is the information that the government has put out. There's information on assessments. As Elizabeth said, the information property by property is anticipated in January some time.
Mr Pouliot: So you have commissioned an impact study.
Mr Sweeting: No, part of the assessment reform exercise, the redoing of assessments, is to get it to a point where, as Elizabeth said, you can indicate a value for each and every property in the province. Those values will be made available. Those are the values that people will assess the impact of tax reform from.
Mr Pouliot: This will be available, for your eyes only, perhaps -- Tom, bear with me, please. If I read you correctly, Monsieur Deputy Minister, the show starts on January 1 and your impact study will reach you some time in January?
Mr Sweeting: The tax reform is effective for the 1998 tax year. That's the tax year. As we indicated, the early part of the tax year will be covered by interim billings, so the money will flow by interim billings.
The Chair: Mr Pouliot, that's your initial 20 minutes. I'm going to move to the government caucus.
I just want to remind the parties, by virtue of the subcommittee agreement, subsequently the committee's agreement, the caucuses are to submit their final list of witnesses by noon to the clerk of the committee. The clerk sent out this list of witnesses with an "n" beside new ones that had come in the last couple of days. However, I should tell you we have 20 places available for Wednesday and Thursday, and 23 applicants, so there's a good chance everybody will have an opportunity to appear anyway. I've already had notice I might have a vacancy tomorrow morning. I just wanted to remind you.
Mr Toby Barrett (Norfolk): I also have a question with respect to property owned by native reserves. We know that land on reserves is exempt from property taxes, and that makes sense because area municipalities are not providing services to the reserve and education is funded by the federal government. What I see in this finance act is an amendment to close what I consider a loophole, where land is being purchased by reserves, I think "in trust" is the expression they use. The land at present does not pay taxes, and I understand now that Ontario is the only jurisdiction in Canada where this is the case. I understand Manitoba, BC and Saskatchewan have repealed this.
I wanted to get an idea to what extent land is being purchased by native reserves in Ontario. My riding is near both the New Credit and the Six Nations reserves. There are some purchases. To what extent is land being purchased and what is it being purchased for? Is it being purchased as farm land? Is it being purchased to set up commercial property along the side of the road or to develop shopping malls?
Mr Sweeting: I don't actually have specifics. There's certain anecdotal information about purchases by native reserve bands. As I said, this is a future or forward-looking provision which intends to create equal treatment for essentially competing businesses receiving similar levels of service from the municipalities. The property tax reform and assessment reform allowed an opportunity to level playing fields wherever possible and appropriate. It was the government's view that this is an area where there should not be a special ability for one type of business, depending on its ownership, to have a competitive advantage relative to another type of business. It is true, as you said, that all the other jurisdictions in Canada have moved to deal with that.
Right now, there is an estimate that there's about $125,000 in municipal taxes that are forgone with respect to some 290 properties. Those properties, as we said, would be grandparented. But that's an example of the size of the issue.
Mr Barrett: I could understand perhaps purchasing land immediately adjacent to the reserve. I have a concern because theoretically land could be purchased 100 miles away and still owned by --
Mr Sweeting: Under the current act, that would be available for the exemption.
Mr Barrett: I see.
Mr Bill Grimmett (Muskoka-Georgian Bay): I wonder if I might ask a few questions about some of these, I would call them more obscure assessment issues, like payments in lieu, rights of way and the gross receipt tax.
On the rights-of-way issue, my opposition colleagues have raised some good issues. The legislation talks about setting up different regions in the province and allocating a rate per acre. I wonder if one of you want to talk about the kinds of entities that are affected and that this issue of rights of way deals with, and how such a regime might contrast with the current setup, the way they pay now.
Mr Sweeting: Certainly. As I indicated previously, the current system of taxation of railway rights of way, for example, is a market-value-based assessment system utilizing abutting land values, which is, in the view of many, an unfair way to try and value these properties. They simply do not have the same ability to market these by their physical characteristics. Since it's assessed and then taxed at municipal tax rates, this has resulted in a veritable hodgepodge of tax rates paid by rail lines as they move from municipality to municipality.
The proposal is to divide the province into nine regions, and within that region to have the tax per acre paid the same, and every municipality would get an amount of money based on how many acres of rail line they have that passes through them. The main lines and the shortlines would all pay the same rate of tax when they're within that geographic entity.
Mr Grimmett: What is the practical impact of the new regime in contrast with the old regime? We're talking primarily about what kind of companies?
Mr Sweeting: The stated intent of the legislative proposal is to protect rights of way from facing reform-related increases in taxes. There's a desire to try and maintain the tax burden that's paid by rail lines. There have been experiences where in previous reforms taxes have jumped significantly on rail lines as a result of an assessment reform. I think the minister referred in his statement to a 500% increase in tax in Halton as a result of reassessment that impacted on rights of way.
The intention is to prevent this from being the source of a tax increase for these particular types of properties, but the actual structure of the rates is something the government hasn't yet determined. It will be made available in the near future.
Mr Grimmett: If I could move to payments in lieu, how will the provincial and federal governments be affected by the legislation and how does it relate to the education portion of the property tax?
Mr Sweeting: The province of Ontario makes payments in lieu in respect of its provincially owned properties. It will continue to do so. It will pay the payments in lieu that are appropriate as a result of the assessment reform changes. So we have to bring in assessment reform and see what impact that would have on the buildings that are owned by the province, and then the province will pay a payment in lieu in respect of that.
As I indicated, there will continue to be payments in lieu paid by heads and beds institutions, which are such things as schools, hospitals and jails, and the draft regulation that's proposed is that they continue to pay these at $75.
The government is also, by virtue of the legislation, indicating that it will make payments in lieu in a situation where it currently doesn't. If it is a tenant in a property owned by a municipality or the federal government, they currently do not make payments in lieu, and it's indicated that they will make payments in lieu.
There's also power for the government to determine the sharing of payments in lieu that will take place, which include federal payments in lieu, among the municipalities and the school boards. There has been no decision made by the government yet in terms of the sharing.
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Mr Grimmett: Do the federal payments in lieu currently include a component for education?
Mr Sweeting: They do. They currently include a component for legislation, but they're also subject to federal determination as to what is an appropriate amount to pay, so the federal government has the ability, and in fact in the past has set payments in lieu at an amount that they feel is appropriate to pay. We cannot make the federal government make payments in lieu.
Mr Grimmett: Can we move, then, to the gross receipts tax. That's now going to be collected by the province. Why would that change be taking place?
Mr Sweeting: Sorry?
Mr Grimmett: Why would we now be taking that at the provincial level?
Mr Sweeting: Essentially, in working through the Who Does What fiscal swap and the intention of the government to produce a result that is fair to both municipalities and the province in terms of the changing of responsibilities and the changing of flows of revenue, the decision was made that the gross receipts tax would be part of making sure that the final result was fair to the province.
Mr Grimmett: When we're talking about the gross receipts tax, the biggest impact, I take it, is on Bell Canada.
Mr Sweeting: That's correct. They are the largest telephone and telegraph company in the province.
Mr Grimmett: I understand they have not been particularly enamoured by the way the tax has been administered in the past. What have been their criticisms?
Mr Sweeting: I'm not sure if they will be here to indicate their concerns directly, but certainly criticisms of the tax in the past have included the fact that it applies to telephone companies as opposed to a broader range of what could be argued to be similar competing companies in the telecommunications range. There has been criticism of the method of distribution of the tax, which relates to phone rentals, which is a relatively outdated mode of maintaining telephone services. Those kinds of issues have been raised previously as criticisms of the tax.
Mr Grimmett: So now they're going to be just paying one bill, is that right?
Mr Sweeting: The intention would be that there would be one bill paid to the province, at a rate to be determined -- on the same basis they're currently paying is what it's proposed to be.
Mr Grimmett: I wonder if you could provide us with your views on how municipalities are likely to deal with the tiered commercial rates. What are the likely thresholds they would come up with and what impact does that have on small businesses?
Mr Sweeting: I would not be able to speculate on what municipalities will do in response to this. I can indicate that the legislation provides them with the ability to, for a commercial class of property, set up to three tiers of tax. That is a mechanism that would allow them to tax lower-valued properties at a lower rate and if they wanted to recapture the revenue, recapture it from a tax rate set on the higher-valued properties. The intention is that it's a graduated system: so much on the first, so much on the second and then a tax on the remainder. Again, as I indicated, the total amount of tax that's paid by all tiers in the commercial class would still be subjected to all the requirements that are associated with the commercial class of property in its relationship to the residential class of property, as determined through transition ratios and tax ratios.
Municipalities will have a choice to determine if they want to have property owners of low-valued properties pay smaller amounts of tax than would otherwise be the case. That will be a local decision, as to how much they do that. It's quite possible that the threshold that would be picked would vary from municipality to municipality as the value of commercial property varies from municipality to municipality around the province.
Mr Ed Doyle (Wentworth East): On page 7, you say: "The property tax treatment for land being farmed pending its being farmed development would be changed.
"A staged approach in the tax treatment of land being farmed, pending its development is proposed that:
"preserves farm land,
"encourages bona fide farming, and
"ensures reasonable and appropriate municipal contributions."
I wonder if you could explain to us the plan for preserving farm land and, for example, somebody who owns a piece of farm land but rents it to another person for farming uses, yet lives on the property -- could you give me some detail on how all this will work?
Mr Sweeting: The proposal is that municipalities will have more ability to determine the amount of tax that should be paid as land goes through the development process. Land is typically farmed as it enters into the development process, and the intention is to continue to encourage the farming of land until the point at which it is no longer appropriate or reasonable to do so. Indeed, there are a number of court arguments that take place currently around whether or not land should continue to be valued as farm land even quite late in what we would consider to be the development process.
This tries to put a little order and certainty around that by indicating that at the point at which a draft plan of subdivision is determined, the land will be revalued from land at farm value to land on owner-to-owner sales for development purposes. It then also allows municipalities to set a tax rate between 25% and 50% of what the tax rate would be for the zoned purpose of that land. This is an attempt to balance the objectives of encouraging farming and the nature of the development process, at the same time as respecting municipalities' desire to achieve appropriate amounts of money from land that's going through the development process, whose value is rising.
As far as land leased, I'll let Bill handle that question.
Mr Wong: Land leased by a farmer to be farmed by another farmer will continue to be valued as farm land, because it's a continuation of what's being done at this moment. So they will have the lower tax liability, because they'd be valued at a lower rate, and they'd be taxed at 25% if they're eligible for the farm tax class.
Mr Doyle: Okay, so if I owned a farm and farmed it myself, it would be no different than if I owned the farm, lived on the property and allowed someone else to use it as farm land.
Mr Wong: That's correct.
Mr Doyle: If I can get on to something else, I wonder if you could explain to us what provisions are available to municipalities, for example, to ensure that small business is treated on a fair basis. It's a pretty general question, but I wouldn't mind a detailed answer.
Mr Sweeting: The municipal ability to respond to small business concerns is primarily achieved through the ability to tier the commercial rates that were talked about earlier. To the extent to which properties are lower in value, municipalities can provide the owner of those properties with lower rates of tax than would otherwise be the case. There are a number of circumstances of standalone small-business-owned properties that this provision would be able to benefit. There are also tentative situations in certain buildings with low value that would be of value to the small business tenants.
The elimination of the business occupancy tax also has some benefits for small business. Some small businesses paid lower rates of business occupancy tax, so there's some potential that change would raise taxes, but a number of small businesses paid the higher rates of tax. The 50%, 60% rates of tax were paid by a number of small business property owners. So the elimination of those rates of tax through the business occupancy tax would be of benefit to those types of small business.
There will be small businesses that benefit from assessment reform because they've been occupying property that's been overassessed relative to other property, and so will come down. It is anticipated there will be a number of small businesses that will benefit from property tax reform, and of course municipalities, if they choose, in areas where business has been highly taxed for a long period of time, under the variable tax ratios and tax-setting powers municipalities have, will be able to bring down taxes on business in general, which would include small business as well.
Mr Doyle: You may have answered this before. Pardon me if I missed the reply. I wonder if you could tell me when the municipalities are going to be getting more information on assessment.
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Ms Patterson: Municipalities were given a preliminary release of information at the beginning of August, when the initial numbers for service transfer were produced. At that point in the assessment delivery process, we had investigated most of the sales that occurred in Ontario in 1996, which is the base year for the reassessment, this being implemented in order to do some analysis of those sales and then to generate values on properties that hadn't sold. So we were at that point, and the information we gave them was based on that sales information. To the extent that we couldn't get a reliable sample from the number of sales because there just hadn't been enough sales on some property classes in some municipalities, we supplemented that with valuations that were done by assessors. The bulk of that information came from actual sales that occurred in 1996.
There's an expectation that we will be updating that when we have a significant proportion of actual current values on properties. Municipalities are expecting that update around the end of November. That information won't be on a property-by-property basis; it will still give them some ideas about the impact on a property class in each municipality, so they'll know what's going to happen with their commercial class, but not with respect to a specific property.
As I indicated, the information will be available on a property-by-property basis by the end of January, and at that point notices will begin to go out to individual property owners describing the value that's been placed on their property. Because of all the change that is occurring, they'll have a fairly long window for public education, an opportunity to discuss those assessments with assessors and get any difficulties resolved, with a view to beginning to produce the final assessment rolls at the beginning of April for delivery at the end of that month. That's the basic time frame for information delivery.
The Chair: We're going to move to the Liberal caucus for 10 minutes.
Mr Phillips: Just in terms of appeal -- because I think there's going to be some widespread interest -- it will only be when people get their actual tax bill they'll have any idea of what this means to them. From the time they get their actual tax bill, how much time do they have to appeal their property assessment?
Ms Patterson: The last day for appealing assessments is June 29, so between the return of the assessment roll, they'll have about two months to dispute the value of their property. I don't know when municipalities will be issuing final tax bills, but as soon as they can produce --
Mr Phillips: So that's the answer, June 29.
Ms Patterson: June 29 is the last day to appeal. There will probably be between March 1 and that time when they'll be aware of the value that's been placed on their property, and they'll have opportunities for informal resolution with the assessors.
Mr Phillips: No, it's when they get the tax bill.
The small business thing worries me a lot, because as Mr Wong just said, an awful lot of small businesses are in bank towers and all sorts of buildings like major industrial malls, all those sorts of things. The way I understand the legislation is that the tax break comes not on the basis of the size of your building but on the basis of where you rent your property from. If you rent from a really small standalone owner, you'll have a lower property tax; if you rent from a large owner, you'll have a larger property tax.
I'm trying to get an idea, and I can't find it in the proposed amendments, of what the ranges are that you propose for commercial properties. Is it anywhere in the amendments or the bill itself?
Mr Sweeting: It's up to the municipalities. The province is not going to determine what the ranges would be. I used the hypothetical example of $50,000 and $100,000. It could be $50,000 and $500,000; it could be $200,000 and $800,000; it could be $100,000 and $200,000. It's really going to be local choice, subject to what they feel is appropriate in their community for these kinds of things.
Mr Phillips: One of the intents of the bill was to simplify things. Have you looked at the possibility or the likelihood that this will create a legal bonanza for property owners simply deciding to have, instead of one owner, 10 different corporations owning the building so they can benefit from this new taxation based on the value of property rather than on anything else?
Mr Sweeting: I can simply indicate that you're right, in a system based on value, one of the potential impacts is the incentive or the potential interest on the part of owners to get down the values of their property through creating two properties, and that sort of thing.
Mr Phillips: What are we trying to get at with this new proposal? What businesses are we trying to help? You've mentioned little standalone restaurants. Who do we think we're helping with this proposal?
Mr Sweeting: Generally speaking, there is an opportunity to help small business with this proposal. As well, there's an opportunity to deal with what has been an issue previously. The treatment of neighbourhood strip properties in Toronto, because of the outdated nature of assessment and the potential for changes to impact -- this is a mechanism by which the new city of Toronto would be able to manage the change in tax that occurs for the neighbourhood strip type of properties, which are typified by --
Mr Phillips: Aren't we really rewarding owners of lower-valued properties, not businesses?
Mr Sweeting: Yes, it is owners, although quite often in the street commercial circumstances you have owners of buildings. But you're right, it's owners, not tenants. The tenants benefit to the extent to which the lease arrangement in the dealings with the landlord results in tax reductions being passed through.
Mr Phillips: I wasn't being rude on this. I think the proposal has very little to do with small business and has a lot to do with owners of smaller properties. If that's what we want to do, okay, but typically business occupancy tax, the lower rates -- I'm generalizing; I know it was based on the type of business you were in -- tended to be smaller businesses. The government has decided to get rid of that tax and make it all now a realty tax, and the only break you can get is if you are the owner of a piece of property that has a lower value.
As I say, the natural outcome to me is, first the lawyers will have a field day because they will be chopping properties up. Second, many of the small business people I know are in huge accommodations. They're in industrial malls -- this is in my area -- where they've rented themselves 6,000 or 7,000 feet in an industrial mall, but they're paying a lower BOT right now.
I guess I'm making a statement more than asking a question. We're creating quite a neat tax opportunity for owners of property, but I'm not sure it correlates to helping small business.
The federal payments in lieu, most of which go to the municipalities right now -- the city of Ottawa takes that cut -- have we got any assurances that the province isn't simply going to say, "We're going to intercept that, and the education portion we will keep for ourselves," in addition to the $2.5 billion on residential property tax? Have we got any guarantee that this isn't simply a grab by the province, to pick up some new revenue?
Mr Sweeting: The government has not made a decision yet on that question. I can't indicate one way or the other in terms of what they're looking to do. As I said earlier, the government has indicated it intends to raise $2.5 billion and there is an authority to prescribe how payments in lieu will be shared, but no more decisions have been made.
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Mr Phillips: This is an amazing piece of work we're doing here, without the publicly, duly elected people having impact studies. You indicated earlier that you don't have one, but can you tell us whether the government has conducted some sort of impact study on what this is going to mean to property taxes? If it has, can we get it? If it hasn't, is it responsible public policy for us to be proceeding with this?
Mr Sweeting: I believe that's a question to ask the minister. It's a question that has been asked previously that the minister has dealt with. I don't feel it's appropriate for me.
Mr Pouliot: You'd make a good minister yourself. You don't answer the question.
Mr Mario Sergio (Yorkview): Could you explain a little bit about the deferral on seniors and the physically handicapped and low-income people? We may see an increase on a yearly basis. I was at a meeting where an example was given, let's say $400 a year. In North York, for example, the education portion is up to 56.7%, almost 57%. Is the province willing to defer that amount for seven or eight years and then to defer every annual increase for seven or eight years?
Mr Wong: The tax deferral or tax relief program for low-income seniors and low-income disabled is for the education portion as well. It is a writeoff if they want to do a cancellation, or a deferral, as it may be.
Mr Sergio: It's a writeoff if they want a cancellation.
Mr Wong: If it's a cancellation, it will be a writeoff, of which the government will absorb the education portion.
Mr Sergio: I see. So if I am a senior and I'm in the low-income bracket and I say, "I don't want to pay this $400 increase," I can come to the province and say, "Write it off"?
Mr Wong: No, it is the municipal program that is doing this deferral or tax relief. It is only for the assessment-related changes. It's not for the whole property tax issue. So if your tax-assessment-related increase is, let's say, $1,000, that's the only portion you can deal with, not the total property tax that the senior pays.
Mr Pouliot: Elizabeth, we hope appeals of assessments will be in by June 29, so people get their assessment notice in April and they have, grosso modo, two months to launch an appeal. How long does the appeal process take?
Ms Patterson: Actually, they'll start to get their assessment notices at the beginning of February through the beginning of March, so they'll have a lot longer than the 21 days they have now to launch an appeal.
How long it will take to get their appeals through is an issue of scheduling for the Assessment Review Board, but the board has received additional staff and funding to deal with the anticipated appeals from the assessment form. They are, as they always do, giving priority to residential properties, which is the majority of properties, but an area in which the financial impacts can be fairly significant and where they can manage to address a lot of appeals in a timely way. There will be some time required in order to register those appeals and file them, but they're hoping to begin with the hearings in the fall of 1998 and to be through the residential appeals, at least, by the summer of 1999 and then to move on to some of the commercial appeals that are outstanding.
As well, the government has agreed to fund -- because we are also part of the service transfer -- the cost to municipalities of defending those appeals, both in terms of staff time and in terms of legal resources that may be required to defend them.
Mr Pouliot: On the same issue, would you have a ballpark figure as to what the waiting list for appeals is at present, how many cases?
Ms Patterson: No, I don't. I know that because of the pending creation of a property and planning tribunal, which will incorporate both the old ARB and the old Ontario Municipal Board, there are business plans for both tribunals to resolve everything that is currently outstanding by the fall of 1999, so the stuff that is under the old system should be through by that time and they'll be able to start then on dealing with the new ones. There are some I guess Mr Grimmett is familiar with, where there has been a long, outstanding legal challenge, for example, where the scheduling of a number of matters has been held up pending that resolution, but they generally try to deal with them in as timely a way as they can.
Mr Pouliot: I was concerned about the numbers, or a number, because it has been decided -- and you've used the word "anticipation" -- that it would be good to go in an orderly fashion as we evaluate and develop this theme. They say, "We have so many appeals. We anticipate, therefore, that there will be so many more," and then you factor in the complexities etc. So surely we must know. Is it 200,000?
Ms Patterson: Historically, appeals on reassessment, not only in this province but in other provinces, have been in the range of 10%. When we originally started to look at this, we couldn't make assumptions about apportionment. I guess we can't yet, until the sections are proclaimed. So we're looking at about six million units at a 10% appeals rate. In fact, it looks like it's going to be four million properties, but the 10% appeal rate is probably appropriate enough. That doesn't take into account any matters that can be resolved by the long window for informal resolution, which in some provinces has been very successful in bringing down the number of formal appeals. You're probably looking at something in the range of 400,000 to 600,000.
Mr Pouliot: Let's say 500,000 appeals. How long will it take to process them?
Ms Patterson: To process, probably four to six months. To actually hear and resolve, probably 18 months for the routine appeals. Large commercial appeals traditionally take longer, because there's a lot of discovery and a lot of legal work that gets involved in it, but the majority of ratepayers' appeals, individual family appeals, should be done in a year to 18 months.
Mr Pouliot: So people who exercise the same honourable profession as my friend and colleague Mr Grimmett stand to gain in this exercise.
Half a million appeals. What happens in the meantime if you're a small independent businessperson in the city of Toronto and you are being reassessed and it is anticipated that your reassessment will mean one thing, and one thing only? We keep in mind that you are not getting a break re education levy. You could be at the mercy -- no imputing of motives. If you're reassessed in the city of Toronto and you're a standalone small business, the value of your property becomes vis-à-vis another in the same vicinity.
This is the heart of the assessment. That's the philosophy of assessment. By all accounts, you're about to be reassessed upwards. You will still pay your full complement of the school levy, so assuming that you're one of the 500,0000 -- and this shall happen -- who will appeal, and it takes two years, grab a number, because of the 500,000 list, what happens? It's business as usual until the appeal is heard? Is there any retro provision? What happens to your lot if you're reassessed upwards, you decide to appeal and it takes 18 months to hear your case?
Ms Patterson: The same thing that happens now when it takes 18 months to hear your case, which is that the law requires you to pay tax on the basis of the assessment as returned, pending any resolution on appeal.
Under the new system, as opposed to the old one, that won't be as long, because there won't be appeals going on to the OMB for another extended period. There is an expectation that where there are significant impacts on taxpayers, there will be a phase-in implemented by municipalities. So the full impact of any reassessment change won't be fully implemented for a period of up to eight years, and therefore the full impact won't be felt until the appeal has been resolved.
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Mr Pouliot: In a previous answer by our ADM, Tom answered, and I sensed in the tone -- please correct me -- that there was a belief that this focus was to help, or certainly not to hurt, small business people.
I have here a current daily from Toronto Press Today: "Tax Base Has Voters Worried." This is the largest daily in Canada, the Toronto Star. This is not your local tab down the street. They make good usage of page 3 to talk to us about "Changes Spark Fears of Spiralling Rate Increases." Nothing less than the Toronto Star; you can pretty well take this to the bank. Those people have the resources, have the professionals to do an accurate job, and they don't profess a bias in any way. This is not a political seat; this is a serious newspaper.
They address exactly that. How timely. They believe that small business people are about to get it in the neck. Monsieur Assistant Deputy Minister, you believe this will benefit small business people, yet you would be hard-pressed to say that when they are reassessed, your good money would be on that they likely, like most other units, be it commercial, industrial or residential, in the city of Toronto will be reassessed upwards. You've heard the presenters, the delegations that we've had. Almost unanimously they voice the same fear, that if you live in the city of Toronto, once amalgamation has its way, if amalgamation and the dumping of new services doesn't get you, assessment and reassessment will.
How do you reconcile both your position that on the one hand you believe that the small business people in the city of Toronto, when all is said and done, will get a benefit under 149 and the fair taxation, yet all accounts on the other side point to an increase in assessment if you reside or do business in the city of Toronto?
Mr Sweeting: I can comment on the view with respect to assessment-related and tax-related, but not on the potential transfer of services, which you also alluded to. It's anticipated that assessment reform will have an impact so that some properties will increase in value and some properties will decrease in value. It will be no different for small business than it is for any other type of property owner. You can expect that there will be some properties that will face higher taxes as a result of assessment reform; some will be lower.
Regardless of whether they go up or down because of assessment reform, which also has a relationship to what municipalities decide to do in terms of their variable-tax-ratio-setting powers and how they tax business property relative to residential, it also includes the yet-to-be-determined education tax rate impact. The application of tiered rates, if they are adopted by the new city of Toronto, will help properties that are of lower value. Those lower-valued properties quite often are occupied by small businesses.
Mr Barrett: Under Bill 149 we know that small commercial theatres will be exempt from property tax and the large theatres and not-for-profit public theatres are also going to be getting a bit of a better shake. I think this is very important, given the contribution to our tourism industry from theatres and the jobs and income that these kinds of theatres generate.
I understand since the introduction of this bill there have been concerns from operators of public theatres, arguing in a number of ways that they're different from the private theatres. I wanted to get some of the details on this, or a bit of an explanation. The amendments that we're proposing in this bill, to what extent do they acknowledge the difference between public theatres used for not-for-profit productions and theatres that are used primarily to stage large, live commercial productions. What are some of these differences? Also, generally, how will the new tax system be fairer? How will it benefit all these theatres, no matter what category they are in?
Mr Sweeting: As you've indicated, the bill intends to create a more competitive and level treatment of the live theatre sector in Metropolitan Toronto. The minister, in introducing this, emphasized the substantial role that Metro Toronto's live theatre sector plays. The bill itself was giving the minister the opportunity to create a subclass of the commercial class for eligible theatres to ensure that an appropriate level of tax was paid. It also requires that public theatres start making payments in lieu where they are in competition with the private sector.
What has happened with the amendments is aspects of this policy which were previously to be contemplated by regulation are now being accomplished by proposed amendments to the act, so there is a definition of what an "eligible small theatre" is, so it's clear in the act who benefits from exemptions from property taxes. As well, the regulation-making powers with respect to the definition of for-profit productions and the payments in lieu in those kinds of circumstances are also moved to the legislation.
There has also been a recognition that the public theatres often have a different character than the private theatres because they typically can have a substantial portion of their run occupied by not-for-profit productions, so there is an opportunity through the proposed policy that the public theatres would only be taxable if the for-profit occupation is more than half the year, and where it is more than half the year, the payment in lieu will only be based on that portion in which there was a for-profit activity in there. If they make various payments related to cross-subsidization of not-for-profit activities, if the for-profit money is used to benefit the not-for-profit portion of the property, then that can be used by the municipalities against the owing payments in lieu.
Mr Barrett: There's one example I'm thinking of, the small not-for-profit summer theatres. I'm thinking of one in a town in my riding, Lighthouse Theatre in Port Dover, which runs for a limited period of time. The very small summer-run type of theatres, what kind of impact is there on these kinds of operations?
Mr Wong: If it is less than 1,000 seats, it would be totally exempt from all property taxation. Otherwise, if it is larger, 1,000 seats or more, it would be subject to the current provision that it's taxable unless it has an exemption through a private bill.
Mr Grimmett: I wanted to prolong the agony on the business occupancy tax and the discussion around that, and how it might affect the relationship between the commercial landlord and the commercial tenant after it is lifted. I thought it was ironic that while Mr Phillips was making his comments, I was thinking that my bias on this issue had been totally the opposite of his, because from my background in a small town, working with commercial tenants and commercial landlords, it's my perception that there still are a lot of tenants in a commercial situation who do not have a property tax component in their rent.
I'm thinking of the situation where a small business is paying rent on a simple basis to a landlord and possibly paying for their own hydro and maybe their own heat, with no tax component in their arrangement with the landlord. After the legislation, if it is passed, begins to impact, the small business operator would no longer have to receive and pay a business occupancy tax bill from the municipality. Presumably the revenue that is lost to the municipality as a result of that will be returned to the property owner in a higher tax bill. Under those circumstances, it is the small business person who would benefit significantly and the small business landlord could be seen as not benefiting. That is a possibility.
Mr Wong: Yes.
The Chair: Thank you very much for your assistance. This committee stands adjourned until 1 o'clock.
The committee recessed from 1201 to 1303.
CN RAIL
The Chair: Our first presentation today is from CN Rail. You have 30 minutes to use as you wish. If you'd like to leave time for questions, that is sometimes helpful to the committee members, and I'll divide it among the three parties equally, whatever you wish. Would you please identify yourselves for the record.
Mr Brad Searchfield: Thank you, Mr Chairman, for the opportunity to appear before you today. My name is Brad Searchfield. I am the director of real estate management for central Canada and the US. With me today is Ron Ditchburn, the manager of property taxation, and Sandra Wood, director of governmental affairs.
Canadian National owns and operates 3,152 route miles of track in the province of Ontario. In 1996-97, this network moved some 50 million tons of freight, the equivalent of approximately three million transport truck movements. We employ over 6,000 people, paying them more than $300 million in wages and salaries. Our operating expenses exceed $600 million and we purchase more than $300 million in goods and services in the province.
In 1997, CN created approximately 200 new jobs in Ontario. In addition, we have purchased 140 new locomotives from General Motors and 300 new railcars to be built by National Steel Car of Hamilton -- total value in excess of $270 million. CN also paid $55 million in taxes to various provincial and municipal authorities, $30 million of that amount in property taxes.
It is, of course, on the property tax issue that we appear before you today -- more specifically, right-of-way property taxes. With your indulgence I would like to provide you with some historical background on right-of-way taxes.
Prior to 1979, railway rights of way in Ontario were, for tax purposes, assessed on the basis of abutting land values. As real estate values began to escalate, particularly in the greater Toronto area, it was recognized by the province that this basis of valuation would so unfairly burden the railways as to dramatically affect their competitiveness.
For the 1979 taxation year, therefore, provincial assessment authorities implemented a railway property tax class factor. This protection was meant to stabilize right-of-way taxes until the problem could be permanently addressed through legislative change. This legislation never was enacted, in part because various municipalities, Mississauga in particular, challenged the province's authority to establish a separate railway property tax class. While the Supreme Court of Canada later upheld that the province did indeed have this authority, this protection was nevertheless removed in 1989. Since then our right-of-way taxes have doubled.
As we understand it, the objective of Bill 149 is to provide some stability for right-of-way taxes. If our understanding is correct, let me say that CN supports the policy thrust of Bill 149 and acknowledges that this is a major step in the right direction. However -- and this, of course, is the "but" -- the government has also eliminated the business tax, from which we were exempt, resulting in its reallocation across the industrial-commercial tax base. Coupled with the implementation of actual value assessment on our non-rail corridor properties, this reallocation will mean that CN's total tax burden on non-corridor properties will almost double when compared to 1997. The potential benefits associated with Bill 149 are negated by the doubling of our tax burden on our non-corridor properties, properties which are essential for our rail operations.
The tax stability envisioned in Bill 149 will actually result in an estimated $15-million property tax increase for CN. Any increase in our tax burden impairs our ability, and that of our Ontario customers, to compete both domestically and internationally and imposes severe constraints on our level of investment and expenditure in the province. In theory, as a business's costs increase, these costs are passed on in the form of higher charges to that business's customers. With all too many industries, however, and in virtually every instance where our major customers are concerned, our ability to increase rates is extremely limited. In evidence, I offer the fact that between 1986 and the present day, Canadian National's average price for moving Canadian freight declined in constant dollars by more than 30%.
In the face of increases in railway freight rates, those of our customers who are also served by the trucking industry -- and most of our Ontario customers are -- would, in response, simply move a greater percentage of their product to the trucking mode. Those that can best be served by rail would have to consider locating, or indeed relocating, to a lower-cost area in an effort to remain competitive.
CN is not seeking special treatment. We accept actual value assessment of our non-corridor properties, and indeed we are prepared to accept the considerable impact associated with the reallocation of the business tax. We are seeking the mitigation of this substantial increase. CN cannot support a property tax increase. We believe this could best be achieved through the elimination of the right-of-way taxes or, alternatively, the reinstatement of the benefit associated with the 1989 railway factor.
This approach allows the government to maintain the fairness of its tax regime and provides a level playing field for the transportation industry. The railways receive no services for taxes paid on rights of ways. We build, maintain and police our own roadway. Right-of-way taxes have more than doubled in Ontario since 1989 and are currently higher than in any other province. They distort the marketplace, impair our ability and that of Ontario's industries to compete, and jeopardize the growth potential of Ontario's burgeoning shortline industry.
Mr. Chairman, members of the committee, thank you for your time and attention today. In addition to that presentation, we have a package of information. I'd just like to briefly explain what we have in this package.
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The first component is this report prepared by Graham Parsons, Canadian National and Provincial Rail Taxes in Ontario's Economy. Graham Parsons is a professional economist with a doctorate from the University of London. He's worked in international aid, trade and development as a consultant. He has been a director general with the government of Canada and deputy minister and chief economist with the province of Saskatchewan.
This report was prepared to understand the tax implications on the railway industry. I just direct your attention to page ii, essentially which is the conclusions of the report under "What Can Be Done?" The report suggests the reduction of the current tax burden on railway rights of ways in Ontario; exempt railway rights of way from taxes; assess other railway properties in a non-discriminatory manner; administer taxes on all railway properties at the provincial level; create a level playing field for all modes of transportation in Ontario.
If you turn to page 40, which is essentially where the economic argument is developed, there's a brief summary of the economic losses from provincial rail taxation of CN. If you look, it shows that from a low to a high level, showing anywhere from about $67 million to $202 million of GDP, $13 million to $41 million in investment, and 1,500 to 4,500 in employee numbers.
The other important point besides the direct economic losses is the economic distortion into the road system. If you look on page 41, the italicized typing, I'll just read these:
"Ontario industry and the rail system has already made major investments in the rail export delivery infrastructure. Losses from this sector must be set against the gain in truck exports.
"Government would bear increased fiscal demands for road maintenance and construction."
If you flip over to the next page:
"Any significant transfer of rail traffic to the road system will place substantial demands for additional road and truck investment. The magnitude of these potential costs is made apparent from the following statistics that provide volume comparisons between rail and trucking for selected commodities."
Essentially we didn't choose to highlight all of the aspects of this report, but I think it's quite a useful tool. Some of it has been summarized in the other part of your package, which is really some of the highlights of this report as well as some of the other information we felt was pertinent.
The slides aren't numbered, but I'll number them. Slides 1, 2 and 3 deal with the direct economic impacts of CN in Ontario. We speak about employment, wages, operating expenses, investment in new structures, as well as describe our customers. Slides 4 and 5 speak to the specific tax implications as we understand them. If you look at this slide with the bar chart, the impacts as we estimate them on our non-rights-of-way taxes will go from 1997 at $13.8 million to a total of $26.7 million. This is for the non-rights-of-way only.
The next slide which is the one with the pies, shows the 1989 taxes versus 1997 versus the projected 1998 under the proposed legislation. The 1989 numbers, adjusted for 1997 dollars, show $9.4 million for rights of way. In 1997 that would go to $16.2 million. In 1998, if the rights-of-way taxes were to stay the same, be frozen at that level, the net consequence would still be an additional tax from $30 million to $42.9 million.
The last four slides, slides 6 through 10, describe the competitive environment that CN finds itself in, this province compared to the other provinces, and looks at taxes as a percentage against the other provinces' fuel tax and concludes with a comparison of all taxes on various industries.
That's the conclusion of our formal presentation. We'll be pleased to answer any questions.
The Chair: Thank you. We'll go to the Liberal caucus, Mr Phillips. You have approximately seven minutes.
Mr Phillips: I think I understand your issue, which is what initially probably looked like a positive move for the railroads, which is to move to a per acreage assessment. An unforeseen, by you at least, outcome of taking the business occupancy tax off and then adding it back on realty taxes has quite a significant impact on you.
I just want to talk a little bit about the right-of-way thing, though, because the chart that you've got in here on the right-of-way comparisons that shows the train moving from Oshawa to Chicago, and the bumps and taxation as it moves along the rail line, makes my interesting point for me. You're moving, probably, through two or three of the nine geographic regions the province has proposed, and what we'll see in the future will be, as it moves through from Oshawa almost to Hamilton, that line will be much flatter. This is total dollars, I guess, and it depends on the acreage of right of way. Then when it hits Hamilton and goes on for a way it will be flatter, and when it hits somewhere else, probably London to Sarnia, it will be flatter again.
So the expectation for you is if there's an acre of land in -- I always say an acre of land in Pefferlaw and an acre of land in downtown Toronto. Your expectations would be that you would pay the same property tax per acre if it's in downtown Toronto or if it's in Pefferlaw. That's your understanding of the bill?
Mr Searchfield: I don't know the geographic regions exactly.
Mr Ron Ditchburn: Yes, within the geographic areas. The first geographic area is actually the GTA, so anything within the GTA, going from Durham into York --
Mr Phillips: Pefferlaw is in the GTA.
Mr Ditchburn: Right. So after eight years they would eventually be the same amount per acre.
Mr Phillips: Right. It's an interesting one. I'm not sure I agree with the chart totally in detail, but in direction I think it's clearly right, in that we've been told by virtually every municipality we asked -- and the committee went around the province on one of the bills -- that they are going to add business occupancy tax back on to commercial-industrial realty taxes. I guess you've assumed about a 40% increase in commercial-industrial realty taxes and I think that's probably right. Why have you assumed that the value of your property would increase taxes by $5.3 million?
Mr Ditchburn: Basically what's happened here is we're concentrating on areas where there haven't been reassessments in many years, such as Metro for one. We're also taking a look at Oshawa; areas like Vaughan where there haven't been reassessments anywhere from 1954 to 1967. Generally what we've found, based on past reassessments, is that the values on land have increased more dramatically than they have on buildings. Because we're land-oriented or land rich, as opposed to having a lot of buildings, there's a shift of taxes to parcels that are not protected with buildings. It moves from buildings to land. So what we expect is that in Toronto in a lot of cases -- this goes right back to the MVA study back in 1992 or 1993, based on 1988 values -- is that we are looking at a potential for increases of up to 500%. We don't expect that to be any different, to be in Vaughan or to be in Oshawa.
Mr Phillips: That's fair. So you've actually looked at each of your properties relative to the assessment.
Mr Ditchburn: We've looked at our major holdings, yes.
Mr Phillips: In terms of what the government's intention is here -- it's difficult for us to find out, but maybe you know better -- was the expectation that you were going to be left kind of revenue-neutral, that this bill was going to leave the major rail operators paying no more taxes on your right of way and no more taxes on your non-right-of-way properties?
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Ms Sandra Wood: I think that's probably a fair statement from our perspective. That's certainly what we were looking for and that's what we hoped Bill 149 would do, leave us paying the $30 million we're currently paying.
Mr Phillips: Certainly that had been kind of what I thought the government was saying publicly. The reason they are seizing control of the right-of-way assessment is, I gather, to end any rapid escalation of taxes on the rights of way. But I think you got one of the unintentional consequences of the bill, which is --
Ms Wood: I think you're right. It came as a surprise to us but I don't think it was an intended outcome.
Mr Phillips: Your proposed solution here is a creative one, I think, of saying if that is the government's intention, they have the tools at their disposal, because as we understand it, the government, cabinet, Mr Eves and Mr Harris, by regulation, will set the tax rate on rights of way. You're saying they have the potential to redress what looks like a dramatic increase in your non-right-of-way property tax by adjusting it on the right-of-way property taxes.
Ms Wood: Yes. Because it's going to happen under regulation, we think that's the easiest way for them to deal with it, particularly since, as you know, we don't think of right-of-way taxes as being fair. However, we want to be good corporate citizens and we're quite prepared to pay the taxes on our non-corridor properties because we get services for those. So keep that. From our perspective that's fair.
Mr Pouliot: Thank you for your time. One more time, an excellent presentation. I listened intently to your presentation and came away with the impression that you did evaluate from a premise of speculation and then this led to some assumptions. For instance, you will no longer be "assessed," but a levy per acre, a fee per acre, répartie, spread over nine regions, with a variance in the assessment, if you wish, in this context in the structure. Do you have any idea what you will be assessed? You say that in view of that, you support the thrust which was the intent and spirit of Bill 149, but only when it comes to rights of way. Am I right?
Mr Searchfield: We believe the thrust is to essentially freeze the right-of-way taxes at the current level.
Mr Pouliot: With respect, how do you arrive at saving money in your presentation on the rights of way? You feel you will be getting a fairer shake because the province will set the rate in lieu of others?
Mr Searchfield: Ultimately we're acknowledging that there's the opportunity for a freeze on rights of way. What we're saying is that unfortunately there are these other influences on our property tax load which are the result of AVA and the reallocation of the business tax. Therefore there may have to be some further movement on the taxation of rights of ways in order to ultimately end up with fair taxation. So the savings would be gained on the right-of-way component in order to balance the total tax load, because that's where the tools are.
Mr Pouliot: Thank you very much. Fair taxation -- and a synonym in this instance is "appropriate taxation" -- the dollars may differ, but we'll wait in terms of assessment.
You also indicate that what you might gain on the rights of way you will lose on account of your multiholdings outside the provisions of the rights of way. In other words, the buildings would be reassessed and you assume that they would be reassessed higher?
Mr Searchfield: Correct.
Mr Pouliot: Do you believe in current value assessment?
Mr Searchfield: Yes, we support the principle of paying fair taxation. Fundamentally, we think rail corridors are a different entity and should be treated separately, and the remainder of our property should be treated like everyone else's property. Non-right-of-way should be treated like everyone else's. There's a consequence to CN that probably is different than some other industries.
Mr Pouliot: Therefore, with respect, would you agree candidly that you've been underassessed?
Mr Searchfield: No, I don't think so, not that we've been underassessed. We have been assessed in the same manner as all of the other owners and industries in those jurisdictions. It's just that those jurisdictions are now going through a reassessment. There will be impacts on us. We haven't quantified the impacts on the people; we assume that the impacts, because of the property tax issue, are more substantive.
Mr Pouliot: You don't happen to have a copy of your latest quarterly or annual report with you, do you? I would feel privileged and favoured if you were to --
Ms Wood: I don't have a copy of it with me.
Mr Pouliot: Maybe M. Tellier has some spare ones. You could get one over.
Ms Wood: No problem.
Mr Pouliot: Will this in any way expedite or have you tipped your hand in selling land?
Mr Searchfield: In selling land?
Mr Pouliot: Yes.
Mr Searchfield: We're going to continue to divest our surplus properties. We have been doing that and will continue to do that. We also are in the process of shortlining other properties that are non-core to CN, and we would hope that fair taxation of those corridors would assist with the sales, make them viable.
Mr Pouliot: You feel in your presentation that the obvious burden of high taxes is a deterrent to competitiveness of the marketplace?
Mr Searchfield: That's been demonstrated in Dr Graham Parson's report.
Mr Pouliot: I see. For instance, CN Rail has to compete with the just-in-time delivery; hence the increase of truck volume etc, and yet you mention the burden on the state to fix potholes etc. I once had your friendly competitor here and it was back to back. One was talking about the unfair competitiveness of CP Rail and the way the luck of the draw had it, CP trucks was right after them. So it called for a very, very interesting dilemma and presentations.
You bring forth as support for your argument a situation that you know very well, that of our neighbour the United States of America. With the annual report, I would also like to have your latest coup or venture, investment in the US. I understand you know Delaware very well and all the competing lines. There's so little time and so much could be said. You don't mention a comparison of economy of scale, land mass, climatic condition, which certainly lends credibility as it makes our job a lot easier.
The Chair: We'll go to the government caucus now.
Mr Grimmett: I just wanted to clarify some of the points that you've made. First of all, I know that your preference would be to have no property taxation on the right-of-way property, but are you saying that if you have to have property taxation on the right-of-way property, Bill 149 does that properly?
Mr Searchfield: It's the application of the regulatory part of that which will determine whether -- the tools are there, as I understand them. It's the application of the tools.
Mr Grimmett: The bill sets out the idea that we'd set up some geographic areas, and nine have been suggested. Would you concur with the suggestion that there should be more geographic areas?
Mr Searchfield: Yes, I suppose --
Mr Grimmett: Or would it be fair to say that there are too many currently because you have to go from municipality to municipality and you don't know what the rates are going to be; they're up and down and all over the place?
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Mr Searchfield: The big part of the problem is just that: Each municipality is dealing with this individually and there is no consistency, so we don't know exactly from day to day ultimately what our tax bill is going to look like. Consistency and stability are very important.
Ms Wood: I think for us it's half the number of geographic areas right now; the nine are probably fine. Our point in this presentation is more the rate per acre, what the rate is going to be, where it is set, at what level.
Mr Grimmett: Right. But you have received the assurance that the rates will be frozen.
Ms Wood: At 1997 levels, as we understand it, yes.
Mr Grimmett: Then let's deal with the off-right-of-way property. The chart here, I don't have a number for it, but it shows the predicted AVA increase in the business tax. Is it fair to say this is a worst-case scenario that you are suggesting here?
Mr Searchfield: I don't think it's worst-case. I think our tax group did some fairly detailed calculations and it doesn't represent worst-case. It represents what we feel is a fair analysis. Is that accurate, Ron?
Mr Ditchburn: Yes, it is.
Mr Grimmett: Other businesses that would operate in the vicinities that you operate in, would they have a different impact?
Mr Ditchburn: What do you mean by other businesses? Are you talking about just general industrial-type businesses?
Mr Grimmett: Commercial-industrial.
Mr Ditchburn: I guess what would happen if I was dealing with the distillers, I would think that my taxes would likely be dropping substantially on the business tax side of it, because they're paying 75% at the present time. If their rounding out procedure is 40%, then they're going to drop. The banks would be dropping. The mom-and-pop stores would be going up. Parking lots would be increasing. It will have to eventually arrive at whatever that average is.
Mr Grimmett: What we've said all along is, when you try to implement one system of assessment throughout the province, there will be some properties that will go up and some that will go down.
Mr Ditchburn: That certainly has been said, yes.
Mr Grimmett: Are you asking to be treated differently from other businesses in this regard?
Mr Searchfield: No, I don't think we're --
Mr Ditchburn: Not in total.
Mr Searchfield: No, we're not asking to be treated differently. We've said that we understand and appreciate the impacts of AVA. We would like it to be acknowledged that the business tax is specific to the railways, that issue of allocating the business tax. So the other industries that Ron was talking about aren't going to be affected as dramatically as we will on that reallocation of business tax. So no, we're not asking for special treatment on the non-corridor. We're just saying when the decisions are going to be made about setting the rates on the rights of way, that there be some acknowledgement of the tremendous increase we're experiencing on the other properties, in order to help establish those rates.
The Chair: Thank you very much for coming today. We appreciate it very much.
RAILWAY ASSOCIATION OF CANADA
The Chair: Will the Railway Association of Canada please come forward, Roger Cameron. Would you please be so kind as to identify yourselves for the record.
Mr Bob Ballantyne: Thank you very much, Mr Chairman. My name is Bob Ballantyne. I am the president of the Railway Association of Canada. I'll leave a business card for you at the end of the meeting. On my left is Roger Cameron, who's the general manager of public affairs at the RAC. On my right is Bill Krestinski, who is with one of the new shortline railways in Ontario, the Huron Central Railway that runs roughly from Sudbury to Sault Ste Marie.
We certainly appreciate the opportunity to appear before the committee today to comment on Bill 149, the Fair Municipal Finance Act, 1997. We have had input not only from Canadian National and Canadian Pacific, the two largest railways that are members of our association, but also from a number of the smaller railways, including Ottawa Valley RaiLink, Essex Terminal Railway and also Algoma Central. All of course are Ontario-based railways.
The Railway Association of Canada has in its membership all 41 railways that are operating in Canada today. That number of railways is up from 34 at year-end 1996, and we have seen our membership increasing at a rate of almost one railway a month this past year, and that has to do with the changes to the Canada Transportation Act that facilitates the creation of shortline railways. Ontario certainly is a province where there has been and will continue to be growth in the shortline railway industry.
The railways have made major changes in the way they work: international tunnel improvements at Windsor and Sarnia, the use of radio-controlled locomotives to increase flexibility of switching yard operations and advanced information systems to track traffic interchange between trains and carriers.
Canada's railways contribute to the country's success as a trading nation. Last year they moved 3.7 million carloads. Most of this volume came from automotive shipments, from industrial and forest products, grain, fertilizers and coal traffic. In addition to that carload traffic there were 1.2 million containers and trailers moved by rail as intermodal traffic. The nature of that traffic is such that it also moves by ocean-going ships between Canada, Europe and Asia and by truck for local pickup and delivery service.
Two thirds of Canadian rail traffic is international, moving either transborder or to port positions for overseas. These exports represent about a quarter of Canada's gross domestic product. Some 40% of the country's exports depend on rail transportation. Ontario is a pivotal place for that success, both for Canada and the railway industry.
In addition to Canadian National, from whom you heard this afternoon, and Canadian Pacific, who will appear tomorrow, there are 16 other passenger and freight railways that operate in Ontario. They include the Essex Terminal, Algoma Central, Ottawa Valley RaiLink, Goderich Exeter, Huron Central, Ontario L'Orignal, the Port Colborne Harbour, Waterloo-St Jacobs, CSX and Norfolk Southern, and the provincially owned Ontario Northland. Passenger and commuter railways include VIA, Amtrak and GO Transit. In addition, Algoma Central and Ontario Northland also have significant passenger operations. These services use existing freight rail lines and carry more than 30 million riders each year and help reduce road congestion and pollution.
The expression that there is nothing as certain as death and taxes is true, as we all know, but we are concerned that the order may be reversed -- that there will be taxes and they may be the source of our death.
Canada's railways paid fuel, property, sales and excise taxes last year at $430.4 million. Although that was a decline of 8.5% after the four consecutive years of increases, the total of these three taxes were substantially higher than the total net income of the industry.
That's not the total tax bill. We were also subject, as are all other businesses, to both payroll and income taxes. In fact, at 2.3 cents per revenue-tonne kilometre, the railways had to produce 18.7-billion revenue-tonne kilometres just to pay the $430.4-million bill of fuel, property, sales and excise taxes. I'd ask you to look at that 2.3 cents per revenue-tonne kilometre and think of it in these terms: We have to move one tonne of freight 10 kilometres in order to generate enough cash to buy a pencil. That means that we've got to generate an awful lot of revenue-tonne kilometres at that rate in order to pay our expenses and to give our shareholders some return on investment.
In Ontario, locomotive fuel taxes held even last year at $27.3 million. Other sales and excise taxes appear to have reduced somewhat, from $37.5 million to $23 million. If you were to ask me why that happened, I can't tell you at this point. When I looked at these numbers, it did surprise me somewhat and I'll be reviewing that to find out the reason. Property taxes increased last year from $33.8 million to $35.4 million on all the railways that operate in Ontario.
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As the Canadian National people mentioned just previously, the railways are not looking for special treatment in taxation, just equitable treatment. The tax policies of federal, provincial and municipal governments continue to discriminate against the railways and put us at a competitive disadvantage compared to North American trucking and our US railroad competitors.
The capital cost allowances for Canadian railways have discouraged much-needed investment in new locomotives, freight cars and intermodal containers. Despite the tax disincentives, the railways have increased their capital spending recently and have indicated that equipment purchases would have been greater if the capital cost allowance policies had been more encouraging.
This is an issue which affects our suppliers, and it affects our suppliers' suppliers, and the employees of both in such Ontario communities as London, Hamilton, Oakville, Burlington, Mississauga, and even such small villages as Apple Hill in eastern Ontario where there is a small railway supply company.
The economic health of these suppliers is closely tied to the health and viability of the railways. They provide a diversity of goods and services to the railway industry ranging from petroleum products to rail cars to communication services. And it affects freight customers in the automotive, chemical, mining, pulp and paper, lumber and newsprint products sectors, as well as importers and exporters of industrial products in other communities throughout this province.
Ontario's railways help improve the international competitiveness of the province. They help maintain employment in businesses and services directly and indirectly related to the rail industry itself. They help Ontario municipalities attract new investments by businesses that depend on cost-competitive transportation services.
For Ontario to remain competitive, it needs a low-cost, viable railway system, both for the transportation of commodities to and from North American destinations and overseas, and for the provision of passenger and commuter rail services.
Increasingly, the railways' ability to fulfil their commitment to customer service is hampered by provincial and federal government taxation and infrastructure support policies that discourage capital investment in railways. Unfortunately, Ontario government policies have contributed to these handicaps.
For example, the railway tax factor -- as was mentioned -- which was introduced in 1979 as a means of stabilizing our tax load was removed in 1989. This left the railways open to inequitable assessments. As you heard from Canadian National, we have seen increasing tax loads on largely unserviced land.
Bill 149 holds out the promise of some stability in railway taxation. It is apparently a recognition that the removal of the railway tax factor in 1989 was a mistake. If so, we too support the policy as an important step in the right direction. However, we hope it's not one step forward and two steps back.
The government eliminated the business tax, from which the railways were exempt, and has reallocated that tax across the industrial and commercial tax base, of which we are part.
The government's implementation of actual value assessment on rail non-corridor properties means that Ontario railways' total tax burden on non-corridor properties could almost double, compared to 1997's burden. Surely this was not the government's intent. Clearly such cost increases cannot be passed on to our customers.
In 1996 average freight rates in Canada declined to 2.3 cents per revenue-tonne kilometre. Since 1989 these average rates have dropped 9.4% just in current dollars, and at the same time we've seen the consumer price index grow by 18.9%. There are two possible options to counteract this potential and unexpected tax increase on non-right-of-way property, including our track-intensive yards.
Accommodation should be made now to ensure this potential increase does not occur, either by broadening the definition of "right of way" to include yard tracks which are part of the North American process for interchanging freight cars between trains within a railway or between railways, or altering the regional rates to balance off the unexpected increase. To truly remedy the problem, and to help make Ontario an even more competitive trade economy, more commitment is needed from the government at this crucial time.
The move to a regional-based centralization rate is a case in point. Such a system is expected to result in consistent treatment of rights-of-way property and prevent unpredictable and escalating tax increases, and help stabilize the revenue base for municipalities.
The new regional rates may be phased in between 1999 and 2006. If so, they would apply to incumbent carriers. However, as new shortline railways enter the market, our interpretation is that after the bill's passage they would face the new rates automatically. We ask the committee to carefully consider the potential negative effect of this automatic application to new shortline railways.
This new administrative procedure should also provide the railways with a centralized method of tax payment, rather than require them to deal with as many as 400 municipalities.
Implementing regional rates which would correspond to the 1989 railway factor level may also assist in expediting handling of many or most of the tens of thousands of outstanding tax appeals. It's also our view that you can't consider municipal taxation of railways in splendid isolation either. Education tax must be considered at the same time if there is to be successful, and equitable, tax reform.
Last, but not least, we are concerned with the future tax policies in northern Ontario's unorganized territories. These may not be addressed until 1999. Equitable tax treatment of these properties is at great risk too.
The effect of any uniform rate should not be to shift the tax burden within the industry, but to implement an equitable solution.
Speaking of equitable solutions, the passage of the federal Canada Transportation Act in 1996 recognized the need to treat railways as businesses first and foremost. The new legislation provided for a more business, focused approach to network rationalization. The result has been a process of significant network restructuring by CN and CP and the creation of smaller shortline railways which are potentially profitable to a lower-cost operator.
The government of Ontario recognized this change and provided support to grow the Ontario shortline industry. This support included the passage of its own Shortline Railways Act, 1995, and certainly in revisions to the provincial Labour Relations Act.
By extension, this allowed the mainline carriers to concentrate on moving carload and intermodal freight in high volume operations between major centres. The new, small railways serve as economical feeder lines, picking up and delivering local traffic in ways which are responsive to local customer needs. Some of those local customers are economic engines in their own right and have a significant impact on the direct and indirect employment in the local economies where they are located.
A few comments from examples in other jurisdictions may be illustrative.
At the Second Canadian Shortline Railroad Conference in Toronto last year, Dan Sabin, who is vice-president and chief operating officer of Iron Road Railways, which is a major North American shortline operator, had some interesting insights. He noted that from modest beginnings in the last half of 1994, his company expected to handle 100,000 carloads of rail freight by the end of 1996. That rail traffic alone kept 275,000 big, heavy trucks off federal, provincial and state highways. This was in the border area between Quebec and Maine.
In Nova Scotia, on their Windsor and Hantsport Railway, they handle 25,000 carloads of freight annually. That volume would have required 75,000 big trucks to move that comparable amount of freight. The net costs in highway and bridge deterioration and the build-sooner costs resulting from the movement of big trucks on a highway are high indeed. The net savings to the various levels of government collectively from this one small Nova Scotia railway were approximately $31 million.
They've calculated, at Iron Road, that their entire 1,100-mile network will save taxpayers approximately $120 million in net highway costs. Expressed another way, the wear and tear of big and heavy trucks on roads and bridges, and on people with whom they share the road, diverts needed funds that could be used for budgets such as education and health care services.
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To compete within NAFTA, competitive alignment and harmonization of cost burdens is really a must if we're going to establish a truly efficient transportation system. Yet the property taxes on railways are assessed differently than most other industries. This particular problem used to be common to both Canada and the United States, but the United States implemented a federal act in 1976 that prohibited a regional carve-out of railways for higher tax treatment. Some states in the United States now even allow spending on maintenance of rail lines to be credited against their property tax payments.
Canada's railways pay approximately 40% more in fuel, sales and property taxes than similar-sized railways operating in the United States. Canadian railways pay four cents per litre in fuel taxes to the federal government, while in the US, railroads pay under two cents per litre to the US federal government.
I know it was mentioned by the previous speaker, from Canadian National, that the level of Ontario fuel tax applied to locomotive diesel fuel is over six times as great as that paid to the northern US border states by their rail carriers.
A 1993 study by the Transportation Association of Canada showed that US trucks, Canadian trucks and US railroads pay about 8% of their total revenues in taxes. In comparison, Canadian railways pay more than 14% of their total revenues in taxes.
In 1995 we did see the British Columbia government take an initiative to lower its railway property tax. Subsequently Alberta decided to cut its railway fuel taxes in two stages: from nine cents a litre to six cents in January 1998, then to three cents in 1999. Their action was a message to the customers of the port of Vancouver that all stakeholders are contributing to the goal of making the port of Vancouver the most competitive service available through the Pacific gateway. These leadership and innovative approaches should not be lost on the province of Ontario.
We realize that all stakeholders have a bottom line they have to be concerned about. These all need to be kept in mind. Railways can help governments solve problems and society's challenges of pollution, road congestion and the impact of infrastructure costs on scarce dollars. Railways can contribute to society's bottom line. How? Railways consume one quarter the amount of fuel per tonne-mile of big trucks, produce one seventh the amount of carbon monoxide and burn half the hydrocarbons of big trucks per litre of fuel burned.
Currently trucks are the largest single source of air pollution in the goods transport sector, accounting for 70% of emissions, particulates, soil and water contamination. Big trucks also cause up to 3.5 times as much traffic congestion as cars. Although big trucks make up some 9% of highway traffic, they are responsible for over 25% of total road costs. Overall the impact of big truck transportation is two to three times that of rail.
Ontario's railways are not seeking special treatment. They have been and want to continue to be good corporate citizens. The industry does, however, want and expects fair treatment vis-à-vis our competitors in trucking and for there to be modal equity with our NAFTA partners. Canadian society quite rightly exhorts railways and all other industries to be world class, and has a right to expect that we will strive to be the best. By the same token, we need leading edge government. We need regulation and taxation policies that are world class if we are to succeed as a nation.
I'd like to thank you very much for your time and the opportunity to make a presentation. We'd be pleased to try to answer any questions in the time remaining.
The Chair: Thank you very much. We have approximately 11 minutes for questions -- we'll start with the official opposition -- about three and a half minutes each.
Mr Phillips: I actually think tradition is that --
The Chair: I'm sorry, beg pardon. NDP caucus. Thank you, Mr Phillips, I did that before.
Mr Pouliot: I sense that because of tax rates and tax structure, it could make it more difficult as you streamline -- times forever are changing -- your operations to attract a shortline operator. Do you feel that as someone conducts its due diligence, which is normal procedure before embarking, you could sense a reluctance?
Mr Ballantyne: Yes, I think that's true, as well as the commercial viability prospects of any shortline property. Also the issues of labour law and taxation clearly would affect a prospective owner looking at the property, absolutely.
Mr Pouliot: With respect, and I know you have that ability to add to the text -- humour does become you -- labour law is for another session. I'm more sympathetic at present with the need for service, especially in our special part of Ontario. I live up north, sir. We've lived through some run-throughs. I'm not imputing motive. You have to have the ability to make ends meet and the possibility to expand etc. That point is well taken. In its extreme, if we develop the theme one step further, failure to attract a shortline buyer could lead to abandonment.
Mr Ballantyne: That's possible. Certainly under the way the Canada Transportation Act is structured, that would be the likely outcome if a shortline operator could not be found.
Mr Pouliot: If you save me the labour challenge, I will save you the historic, since Confederation. We won't go through huge tracts of land and tax structure etc. Your time is too valuable.
Mr Ballantyne: And so is yours.
Mr Pouliot: Are you more focused on the impact on rights of way and/or outside of rights of way, the properties?
Mr Ballantyne: I think we would really reiterate what the people from Canadian National said. That is, we expect to be treated like all other businesses on our non-right-of-way property. The right-of-way property is, in our view, unique in that we look at it compared to our friends in the trucking industry. We don't collect property taxes on the railroads that you and the municipalities own, at least not that I'm aware of. We may collect taxes in some way, shape or form, but not property taxes. Our rights of way are really unserviced property that is comparable to that use of public right of way by the trucking industry, so we aren't looking for very special treatment there.
Mr Grimmett: I'm interested in pursuing the idea you suggested on page 5, that you could be accommodated by a change in the definition of "right of way." Do you have a more specific reference to right of way in the act for that? Can you get us something more specific?
Mr Ballantyne: I don't have something I could give you today, but we could develop something we would feel would be appropriate for that. The issue there is one of looking at --
Mr Grimmett: Are you talking about the staging yards?
Mr Ballantyne: We're essentially looking at marshalling or switching yards since they would have no other purpose and not have to be serviced in any way that would affect municipal services.
Mr Grimmett: They're currently assessed on a commercial or industrial basis and you pay tax on those as you would on your other non-right-of-way properties?
Mr Ballantyne: I assume that's the case. I'll ask the tax advisers here if they have a comment.
Mr Ron Ditchburn: That's largely correct at the present time. They're assessed similarly to any other industrial properties.
Mr Grimmett: In the time remaining for me I'll also say that some of the comments you've made about reducing the amount of traffic on highways -- the trucking versus rail argument is one I'm interested in, but I have to tell you I've been to industries in my riding.
I was at one recently, their new operation where they make laminated wood. They had the rail line -- I think it was CN -- that came right into the yard. I said: "Well, isn't that great? You've got the rail line right here. You can take advantage of shipping your product by rail." The president assured me they couldn't make any use of that line. I said, "Why not?" He said, "It's cheaper to ship by rail, but we can't get any guarantee that our products will arrive at the customers on time." I've heard that from other people as well.
The point I'm making is that in terms of competing with the trucking industry, it isn't just a matter of taxation. There are a lot of different issues. Service is one of the main ones.
Mr Ballantyne: That's true, there are a lot of issues, and yes, service is one of them. There are a lot of factors involved, certainly the distance. If this particular shipper's markets are all within a 200- to 300- to 400- to 500-mile radius --
Mr Grimmett: It's Manitoba.
Mr Ballantyne: Then it's rail and service. That clearly should be able to match that of truckers. The railways, both big and small, have been striving mightily to make service improvements. I think there are a lot of service improvements. In terms of the shortline railways, they've added a new dimension to the detailed pickup and delivery of freight. In a number of areas I think we should see substantial improvements to that local switching and servicing of plants.
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Mr Phillips: The brief was quite comprehensive. I'm just trying to get myself focused on our bill and how we can help you there. I think Mr Grimmett has his hand on it, that your big concern is the same concern CN just expressed, and that is, as far as you can see, the bill which would seem to be kind of redistributing taxes but not unfairly increasing taxes, in your opinion, unfairly increases taxes on the total rail package.
My suggestion is that if that was the intent of the government, to make sure the rail lines didn't pay more taxes, the solution will probably have to rest a bit with them. If that was the policy intent behind the bill, your suggested solution is perhaps one that the government might want to consider, which is, I gather, to use the flexibility on the rights of way to accommodate your increase on your buildings and on your marshalling yards.
Another thing I would say is, be a little bit careful when you come to committee saying your taxes declined by that amount. We'll try and find out why.
Mr Ballantyne: That's what I said when we were researching this and I looked at that number; it really surprised me. As I said, I'm going to go back and look into that one a little bit further.
Mr Phillips: The tax collectors probably already are. On your broader point, I think it's an interesting debate, and that is, what should our transportation policy be encouraging in Ontario? Realistically, this is probably not the forum where that is going to be joined, only because we're dealing with a specific bill on a specific issue. I think we understand your issue and it's going to be a question of whether the government can respond to what I think their policy decision was with a specific amendment that accommodates it.
I think you made your points very well on it. I just bought a new car alarm and the thing doesn't seem to be working that well.
Mr Pouliot: I was raised in Montreal. How long does it take to steal a car?
Interjections.
The Chair: Thank you very much for coming today. We appreciate it very much.
PROFESSIONAL ASSOCIATION OF CANADIAN THEATRES
The Chair: Will the Professional Association of Canadian Theatres please come forward, Pat Bradley, executive director. Welcome and thank you for coming.
Ms Pat Bradley: Thank you for listening to me today. I certainly won't take half an hour in my presentation. I shall be brief.
I am here to speak specifically to the provisions of Bill 149 that deal with the exemption from property taxes of small theatres, defined as those with fewer than 1,000 seats.
My name is Pat Bradley. I'm the executive director of the Professional Association of Canadian Theatres. PACT is the national trade and service organization for anglophone professional theatre across the country. We represent every size and style of Canadian theatre, in every province and one territory.
Some 44% of our membership of 111 theatres is in the province of Ontario, which is hardly surprising given that Ontario has been, over the past few generations in any case, the centre of English-speaking cultural activity in the country. Of those 49 member theatres in Ontario, 30 are in what is now Metropolitan Toronto, soon to be the city of Toronto. The others are throughout Ontario in communities such as Manitoulin Island, Stratford, St Catharines, Morrisburg, Ottawa, Sudbury, London, Drayton, Hamilton, Thunder Bay, Niagara-on-the-Lake, Barrie, Port Dover and Lindsay. I've probably offended a few of my members by leaving their cities out.
We welcome Bill 149 in that it provides a level playing ground in an area that is currently a patchwork of practice across the province, and indeed inside individual municipalities, including Metropolitan Toronto.
The Grand Theatre in London, for instance, pays no property tax. This is in recognition of the contribution that theatre makes to the city of London in economic benefits, jobs, tourist attraction and general cultural activity.
Theatre Aquarius in Hamilton, as another example, has recently been declared a civic facility by the regional municipality of Hamilton-Wentworth, thus relieving the company from property taxes. However, they had been in a severe property tax arrears situation until a partnership between the government and a private donor got them out of an in excess of $1-million tax bill.
Within Metropolitan Toronto, practice is all over the map. There are number of other municipalities that collect full property taxes. In Metro, Young Peoples' Theatre, for instance, and Buddies in Bad Times Theatre which I believe you will hear from later today, are both in municipally owned facilities and both pay property tax to the tune of $129 per seat in the theatre. The Alumnae Theatre in Toronto, municipally owned, is completely exempt from property tax. Other not-for-profit theatre companies in buildings in Toronto they themselves own or rent pay amounts varying from $41 per seat to $157 per seat.
Obviously Bill 149 will provide a more dependable and equitable approach to property taxes for theatre companies across the province.
We would urge the ministry, in developing the regulations concerning the exemption, to be even-handed and straightforward in defining eligibility, to ensure that the obvious intention of the bill of levelling the playing field and being equitable is maintained. PACT and its Ontario-based member companies would be pleased to be consulted during the development of the regulations.
PACT also welcomes the ministry's rationale for Bill 149's proposed property tax exemption. The release from the ministry concerning this element of Bill 149 noted the contribution that not-for-profit theatres play in "act[ing] as a training ground for the industry," meaning the commercial theatre industry, and in recognition of "the vital contribution of small theatres to the industry."
These observations are accurate and indeed have been made many times by those commercial theatre producers who have made their base Toronto, rather than Chicago, Los Angeles or New York. Commercial theatre production, and indeed television and film production, which is big business in Ontario, would not be here and indigenous to this province were it not for the outstanding professionals -- actors, directors, writers, designers, craftspeople and technicians, and producers -- who have received their training in the province's not-for-profit theatres.
Having acknowledged that, I would like to take a moment to point out some of the many other benefits not-for-profit theatres provide to communities across this province, and which are also, I think, acknowledged by this part of the act. They hire local artists; they tell local stories; they provide educational opportunities to students, both within the schools and within the theatres; they are an essential meeting place for communities. The spillover to providing an industrial base is a fortuitous result, not the raison d'être of our province's theatres.
Which brings me to my last point, one of context. The measures of Bill 149 that relate to tax exemptions for theatres are indeed welcome. They do not, however, by any stretch of the imagination, begin to repair the damage done in Ontario communities by the continuing and dramatic cuts to the Ontario Arts Council and the Ministry of Citizenship, Culture and Recreation. I think every Ontario resident understands the fiscal reality we live with in the 1990s. I know the arts community expected cuts to the Ontario Arts Council, as there have been cuts in every area of service to the public. The actual cuts, at 40% to date, have far exceeded reasonable expectations.
To give some context again, best estimates of the savings theatre companies in Metropolitan Toronto will see through the property tax exemption are in the $190,000 to $250,000 range. If we double -- which is a generous estimate given the number of theatres that are in Toronto -- that figure for the entire province, we see an amount between $380,000 and $500,000 that no longer needs to be spent. Since 1994-95 the funding to Ontario communities through the theatre programs of the Ontario Arts Council has been decreased in excess of $2.9 million.
But, I will say again, we do welcome this measure of Bill 149 as the beginning of the rebuilding of the professional theatre sector in Ontario. Thank you for your attention.
The Chair: Thank you very much. We have approximately 23 or 24 minutes for questions. We'll start with the government caucus this time.
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Mr Grimmett: I wonder if perhaps you could comment: On the first page you've listed some of the theatre companies that will benefit from the smaller theatre exemption, and that is based on the 1,000 seats per theatre. What would be the average size of these theatres, in number of seats?
Ms Bradley: I have members all over the map. The Stratford Festival, for instance, has a theatre that is well over 1,000 seats. Some of my members have theatres that are about 100 seats. The mid-sized theatres across the province are in the 200- to 450-seat range, most of them.
Mr Grimmett: There are three at Stratford, right? They wouldn't all be over 1,000.
Ms Bradley: Yes. The biggest one is over 1,000, the others are under 1,000.
Mr Grimmett: Would Queen's Park be a theatre under 1,000? I guess it would be.
Ms Bradley: I'm not quite sure how many seats are in the spectators' gallery.
Mr Grimmett: I think there are fewer than 1,000.
Mr Doyle: We know they're bad actors.
Mr Grimmett: We won't ask you to get into that. I wondered if you might comment on the implication of the exemption. Will it possibly translate into lower ticket prices?
Ms Bradley: In the long run it might very well. The severe fiscal reality is that most not-for-profit companies are operating at a deficit. Many of them have been climbing out over the last few years but are encouraged by funders -- the Ontario Arts Council, the Canada Council and others -- to get their fiscal houses in order. I suspect that, like the province and like the country, until that fiscal house is in order there won't be a drastic lowering of ticket prices.
Mr Grimmett: Even though you comment on the fact that the Ontario Arts Council has been providing funding in the millions in the past, it hasn't prevented individual theatres from running up deficits.
Ms Bradley: No, it hasn't.
Mr Ted Arnott (Wellington): I think it's fair to point out and add that there are quite a number of theatre groups that don't receive a penny of Ontario Arts Council funding. I represent the village of Drayton. The Drayton Festival, which is well known now, I don't believe has ever received grants, but they have a theatre that I believe is owned by the village. How would it have worked for them? Would they be paying property tax previously?
Ms Bradley: I should have checked with Drayton because I can't quite answer that. If I recall correctly, the arrangement they have with the village involves that they pay no property tax. I'm not positive of that. In some instances it won't actually have an effect on companies.
Yes, indeed, the majority of theatre companies in the province are subsidized through various arts councils. Many of them that aren't are subsidized in different ways: in tax exemptions, in special deals with municipalities and villages.
Mr Arnott: Thank you very much for your support of this provision of Bill 149.
Mr Grimmett: I just wondered if perhaps you could comment on the type of employment these theatres offer. I know there is a certain unique group of people who benefit from having theatres when they graduate from university or when they come out of certain courses. I suspect a lot of them are in the youth employment. Do you see this as being of benefit to that group?
Ms Bradley: Absolutely. Certainly the smaller theatre companies, and a group of theatre companies that isn't really affected by this because they're primarily touring companies for young audiences through schools, are huge training grounds for graduates from university and other training programs. The arts worker in Ontario is among the most highly educated and highly skilled worker in a variety of sectors. The smaller companies certainly provide huge opportunities for youth.
The Chair: We'll go to the Liberal caucus.
Mr Phillips: I appreciate the work you and your members do. Just so I'm clear on your expectations here, of your 49 members in Ontario, have you any idea how many of those would currently not be paying property tax?
Ms Bradley: I could give you a rough estimate. Because I didn't know I was coming here until Friday, I didn't have time to do all the research. Probably about a third of those are non-building-based companies. They don't have a home that they always appear at, so they would be renting facilities. Of the others, perhaps less than a third don't currently pay property tax. I would say just less than a half of my members in Ontario will likely see some effect with this bill.
Mr Phillips: Your expectation is that in total it should reduce their expenses by somewhere between $380,000 and $500,000.
Ms Bradley: That's my best guess right now.
Mr Phillips: Have you any idea how many other theatres there would be that are not members of your organization that would be impacted by this?
Ms Bradley: It partly depends on the regulations, because there is a large group of theatres that is not covered by my membership. They're not professional theatres, they're community-based theatres. It's unclear to me whether they would be affected, but the vast majority, certainly of anglophone professional theatres in the province, are in my membership.
Mr Phillips: I gather in Metro Toronto the bill will allow Toronto some special consideration for the larger theatres. Have you any comment on that?
Ms Bradley: I'm primarily representing not-for-profit theatres. I have two commercial theatre members currently: Mirvish Productions and Walt Disney Theatrical Canada Inc who are leaving -- or, have left. There will be no change to the Mirvish Productions theatres, the Princess of Wales and the Royal Alex, because they're currently paying the full freight of their property tax.
Ms Marilyn Churley (Riverdale): I'm sorry I came in in the middle of your presentation. I'm replacing my esteemed colleague for a few minutes here, so if I ask a redundant question, please forgive me. I just had a quick look through your presentation. I understand from looking at the background information we've been provided with and your paper that there are regulations to be developed which will determine -- this is where I need clarification -- how theatres in general will be able to apply for this exemption. Can you expand on that a bit, your understanding of how they can do this in such a way that there will be an even playing field? That's yet to be determined?
Ms Bradley: Yes. As I understand it, the regulations to be developed will deal with eligibility. I would imagine they will deal with issues like form of corporate organization, whether it's a not-for-profit society or a municipality or a for-profit organization that owns the space, and perhaps also the type of organization that operates in it. As I have alluded to, I'm not sure if this would apply to community-based theatres as opposed to professional theatres. These are the issues I would expect the regulations to deal with.
Ms Churley: You're recommending, of course, that it would apply to community-based theatres.
Ms Bradley: Although I don't represent community-based theatres, I would certainly recommend it because they are even more widespread in the province and provide additional opportunities for Ontario residents to enjoy the professional theatre and --
Ms Churley: Is it really a hodgepodge now of who pays taxes?
Ms Bradley: A complete hodgepodge, yes.
Ms Churley: How is it determined, municipality by municipality, private member's bills, that sort of thing?
Ms Bradley: Private member's bills, which have been very difficult to get in all these instances in the last 10 years or so; individual municipalities; and in some instances both municipal and regional governments, when that's an issue, have been highly in support of property tax exemptions, but the school boards, which are now the other part of the tax bill, were unwilling to let go of the tax money they had, given their financial constraints.
Ms Churley: Speaking of that, right down the hall from here there's a discussion going on around Bill 160. If that bill goes through as it is, this government, by regulation, will be making those kinds of decisions down the road, because the school boards are virtually being eliminated, but that's another story.
I just have one last question for you. I note in the last paragraph of your submission you say this is a welcome step in terms of trying to deal with the fiscal problems theatres are experiencing. What other recommendations do you have for the government at this point? I know there are a lot of theatres in trouble. If you had one other thing you wanted to advise the government on today that the theatre community needs, what would it be?
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Ms Bradley: I would say to sustain support of the Ontario Arts Council. The Ontario Arts Council is the most important building block and policy tool this government has for sustaining the arts community in Ontario. It's taken severe, severe cuts. It's surviving as it is, and another cut will cause a lot of hardship across the province and a lot of job loss.
Ms Churley: That opens up the whole question that there are those who believe that if theatres can't survive on their own -- I believe not all the government members but some people feel that way, that it's private enterprise, and you either make it or you don't. What would you say to that?
Ms Bradley: I would say that there isn't a developed country in this world that doesn't have some form or another or a combination of forms of government support of the arts, whether it's direct subsidy, as it is in most of the European countries, or whether it's encouragement of corporate donations and foundation donations, as it is in the United States. We have an odd combination of both, and to expect that the corporate sector will pick up where government left off is unrealistic in the short term.
Ms Churley: So in the long run we could lose out on a lot of this job creation and the tourism and all of the other aspects that go along with theatres and communities.
Ms Bradley: Absolutely.
The Chair: Thank you very much for a very interesting and helpful presentation.
Ms Bradley: Thank you very much.
N0N-PROFIT INTERNATIONAL BRIDGE COMMISSIONS
The Chair: Would Ron Lampman, the secretary-treasurer of the Buffalo and Fort Erie Public Bridge Authority, come forward, please. Thank you for coming. You have 30 minutes for your presentation, the time to use as you wish. If you'd like to leave time after your presentation for questions, I will divide the time equally between the three caucuses that are present on committee.
Mr Ronald Lampman: My name is Ronald Lampman and I am secretary-treasurer and Canadian officer of the Buffalo and Fort Erie Public Bridge Authority. I have been chosen to represent five international non-profit bridge commissions. These include the International Bridge Authority in Sarnia, the Buffalo and Fort Erie Public Bridge Authority in Fort Erie, the Blue Water Bridge Authority, the Niagara Falls Bridge Commission, and the Ogdensburg Bridge and Port Authority.
We are pleased to have the opportunity to address the standing committee on Bill 149 this afternoon dealing with the Fair Municipal Finance Act (No. 2). We have been strongly supportive of the government's objective to bring fairness and consistency to the legislation and the regulations to affect the non-profit bridge industry. We appreciate the government's move not to tax bridge spans. However, we are concerned that the method the government has proposed in assessing the non-profit bridges for taxing purposes does not reflect the unique status of these non-profit bridges.
The taxation structure of international bridges has been confusing and inconsistent. Most of the bridge commissions have been taxed differently depending on the enabling legislation of each commission. It has proven to be a difficult task to develop acceptable taxation solutions.
Some of the complex factors for taxing of international bridges and tunnels are as follows:
(1) Some of the crossings are municipally owned; for example, the Windsor tunnel between Windsor and Detroit.
(2) Some authorities are binational; for example, the Blue Water Bridge, one half of which is controlled by the Michigan Department of Transportation and the other half by the Blue Water Bridge Authority, which is a federal entity representing Canada.
(3) Some of the crossings are private entities, whereas all others are not-for-profit public service authorities. For example, the Ambassador Bridge between Windsor and Detroit is a private entity, whereas the Peace Bridge in Fort Erie, Ontario, has federal legislation jurisdiction in Canada and state jurisdiction in the United States, whereas upriver, the three bridges that are represented by the Niagara Falls Bridge Commission have federal legislation jurisdiction in the United States and provincial in Canada.
(4) The economies of scale due to the enormous traffic variations between these crossings affect the affordability to the extent that several of the crossings already operate at a deficit.
The international bridge community supports the Ontario government's concerted effort to enact a fair and consistent taxation policy in this primarily public-benefit area of service. The government's Who Does What panel has recognized the bridge authorities' concern regarding the existing inconsistency in taxation practices and the problems of enforcing tax obligations. Recognizing that the government has reviewed several policy options, the non-profit bridge commissions are also highly supportive of the government's decision not to tax bridge spans. The bridge commissions also support the provision in the Fair Municipal Finance Act that states that bridge structures will not be taxed but would be subject to a nominal payment prescribed by the Minister of Municipal Affairs and Housing.
However, the international non-profit bridges believe the proposal to base assessment on revenues does not appreciate the unique position of the non-profit bridges. They are concerned that the revenue-based test valuation model being considered by the ministry increases the opportunities for annual taxation fluctuations. The non-profit bridges are unique entities providing the trade links from the provincial highway system to the United States highway system. These bridges require capital-intensive and long-term operating plans to responsibly provide the infrastructure necessary for trade and tourism. In order to responsibly provide the infrastructure necessary for trade and tourism, significant capital investment is required. The unique non-profit bridges would be better served through a stable, prescribed levy tax situation.
The joint Canada-United States non-profit public service agencies operate the international crossings with equal representation from both countries. No public funds have ever been used for the construction, operation, maintenance or for capital expenditure by the non-profit bridge commissions. All financing has been done from private and institutional funds, and in most cases secured in the United States because of a favourable tax advantage.
In addition to maintaining a large transportation infrastructure network, the commissions provide, at no cost to Canadian taxpayers, all facilities required by federal services, which include immigration and customs operations at the seven non-profit international bridges.
The Ontario border has developed into the largest commercial and tourism connection in Canada. The 13 bridges and one tunnel carry up to 60% of all exports to the United States and over 40% of all NAFTA-based trade. With 72% of the Canadian population living and working within a 150-mile corridor, the 110 million border trips translate into one million jobs. Funded primarily through private United States bond issues, the bridge commissions receive no government subsidies for their operations or capital improvements.
Steadily increasing demand and new area attractions such as the casino in Niagara Falls have been leading to the development of modernization and expansion projects. The Peace Bridge is currently implementing a $200-million capital plan that includes the twinning of the bridge. Several of these bridges are currently in the process of implementing multimillion-dollar, multi-year improvement projects. I think you're certainly aware of the twinning of the Blue Water Bridge at Sarnia. These projects include a total modernization and reconstruction of the Rainbow Bridge processing facilities and a new transportation corridor for the Whirlpool Bridge. These initiatives are intended to respond to ever-increasing vehicular border crossings. The increasing demands have created an even greater urgency to these major capital expenditures for crossings and customs and immigration facilities.
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For the long-term planning required for these major capital improvement projects, the bridge commissions depend on a stable and predictable taxation policy. The bridge commissions support the objective of the Ontario government's proposed legislation to bring fair and consistent taxation to international crossings. However, the non-profit bridges are concerned that a new taxation structure does not adequately address the long-term stable rates.
Unlike other commercial sectors, the non-profit international bridges are unique. Because the authorities operate as non-profits, not profit-generating centres, it will be difficult for the Ministry of Finance to treat them like other commercial enterprises for several reasons:
(1) Similar commercial land in the vicinity is only valuable because it is near the bridge, not because of any outside economic factors. The bridges should not be penalized for providing the service that brings economic opportunity.
(2) The bridges are non-profit, with limited revenues. There is no distribution of profits. All profits are reinvested into the facility and utilized to service capital debt for capital improvements. To increase taxes on these revenues removes any incentives for improvements and other capital expenditures in Canada.
(3) Several of the bridges are located on lands that have significant archaeological deposits that reduce the value of properties and restrict development.
(4) The bridge commissions require long-term certainty on taxation levels and policies. Adopting a model based on fluctuating property values is unacceptable.
(5) The bridges provide necessary customs and immigration infrastructure services to the federal government at no cost to the taxpayers of Canada, including maintenance and janitorial services.
The non-profit international crossings provide a unique service and should not be treated like revenue-generating bridges or other commercial property owners. This could prove to be very costly to the province for various reasons.
First, capital program commitments are already in place, financed with United States held and issued bonds. These long-term bonds are indentured to cash flow. A disruption puts them in jeopardy, including opening them to serious challenges. From the Peace Bridge perspective, we have outstanding debt of $53 million incurred in 1995 that has been guaranteed with future revenue streams.
Second, most not-for-profit international bridges are already bound into major infrastructure expansion programs financed by private United States bond issues. The indentures already include fairly aggressive toll increase schedules over the next decade calculated to the maximum point of consumer resistance. Further increases as a result of new taxes may drastically reduce discretionary crossings and actually reduce toll revenues. The non-profit bridges cannot contemplate this position without encountering financial and legal entanglements potentially able to prohibit the repayment of one or the other. Such a situation would create an insolvency imponderable to the government as well as the bridges.
Third, the vast majority of existing and proposed capital construction is for the sole use of customs, immigration, and Agriculture Canada, with no reimbursement for capital or overhead from the government. In the United States, crossings get 100% reimbursement from the federal government and 100% tax exemption from the state. In Canada, the federal government imposes the costs of improvements on the bridges, and now the province will allow the higher taxation of those improvements by allowing MVA to be imposed on imputed rental incomes. Forcing these non-profit commissions to pay taxes on non-existent revenues provides no incentive for the bridges to develop capital improvement projects or maintain existing public service capabilities in Canada.
In summary, the Ontario border has developed into the largest commercial and tourism connection in Canada and carries up to 60% of all exports to the United States. The free trade market and economic growth are pressuring the bridge commissions to modernize and upgrade facilities. For example, the Niagara Falls Bridge Commission is currently implementing a $220-million, 30-year, three-bridge improvement program being funded by United States bond issues. The other bridge commissions are also planning large capital works. These projects could be threatened if the bridge commissions are faced with the uncertainty of rising taxes.
With leveraged financing and subsidies to federal ministries, every dollar extra in tax to the non-profit crossings translates into $40 to $50 less available for capital expansion and maintenance infrastructure. These severe cash flow implications will oblige every authority to revisit their plans for new federal processing facilities, new infrastructure and investments in international accord initiatives for cross-border trade enhancement and expedition.
Historically, the authorities have also invested millions of dollars into volunteering significant road work, building and mitigation to the direct credit of MTO and the municipalities; for example, the Peace Bridge and Whirlpool corridor. These good-corporate-citizen initiatives are threatened by the current uncertainty surrounding these taxation issues.
Independently funded, non-profit crossings provide extensive direct and indirect benefits for the Canadian economy. Not only do the bridge commissions provide crossing services to businesses and individuals, but they provide the infrastructure necessary for government border and inspection facilities.
The non-profit bridges are committed to working with the government to develop a strategy to ensure that a reformed tax structure allows them to continue to provide these necessary services to both Canada and the United States.
Thank you, Mr Chairman.
The Chair: We have about 16 minutes for questions.
Mr Phillips: I view our international bridges as absolutely essential to our economy. Some 90% of our exports go to the US. Just-in-time delivery of our auto parts -- I always worry if I see a truck waiting for 10 minutes at a border because I think it jeopardizes our parts industry whenever there's a holdup at the border. So I think this is an extremely crucial issue for Ontario of ensuring we have the infrastructure to accommodate our commercial traffic, and I don't mean to underestimate the importance of our tourist traffic. So you got my attention at least.
The way it had been described to us was sort of as a fairly benign little change in the bill designed to provide for a level playing field and that everybody would simply be treated equally. I frankly hadn't focused a lot on this aspect of the bill. I simply thought it was kind of housekeeping and a tidying up of something that needed tidying up. You've indicated to us significant concern, at least if I hear you properly. Is this a major issue for us to be concerned about, in your opinion?
Mr Lampman: Yes. It certainly is a major issue that we look at from the perspective of the non-profit bridges. For example, and to give you an idea of some of the inconsistency that existed, one of the Niagara Falls Bridge Commission's bridges at Queenston was covered under the former international municipal payments act and was paying approximately $80,000 in taxation to the town of Niagara-on-the-Lake. Looking at the Peace Bridge, ours being based on an assessment base, we're being asked to pay 10 times that amount of money in taxation annually -- levels of traffic and some of those other issues. So I think there is a level of concern with respect to the fair and consistent playing field for all international crossings.
Mr Phillips: That sounds like there's a need for drastic change. Does this bill accommodate your concerns in that area?
Mr Lampman: In some respects it does, but in addition we have had some concern with the test valuation model that we have had the opportunity to review. We believe that from a non-profit perspective, we would be better served by a stable prescribed levy tax situation versus looking at a test valuation model that has been suggested to us.
Mr Phillips: So the bill would correct this one bridge paying $80,000 and you paying $800,000 a year in taxes; this bill does address that.
Mr Lampman: Yes.
Mr Phillips: But I gather you're saying it raises some other concerns.
Mr Lampman: It raises some other concerns with the test valuation model that we have been able to look at that has been a revenue-based model. From our perspective, we don't feel that a revenue-based model fits the situation with respect to non-profits, and hence what we're looking at is the possibility of having the non-profit bridges being covered by a stable prescribed levy versus a revenue-based model that we've seen in the test valuation model.
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Mr Phillips: On one hand, you want a level playing field with the for-profit bridges --
Mr Lampman: The not-for-profit bridges, yes.
Mr Phillips: So you want a level playing field with the not-for-profit bridges. You represent the non-profit international bridges.
Mr Lampman: Yes, I do.
Mr Phillips: You want a level playing field with who again?
Mr Lampman: For the not-for-profit bridges, yes. We think we're distinct, unique entities when compared to for-profit bridges.
Mr Phillips: I'm trying to figure out where the level playing ends. If you are a for-profit bridge, you don't mind different tax treatment.
Mr Lampman: That's correct.
Mr Phillips: Just help me with the rationale for that. I have crossed, I guess, every bridge and I'm not aware which one is not-for-profit and which is for-profit.
Mr Lampman: The bridges that I represent, which are the Niagara Falls bridges, the Blue Water Bridge and the International Bridge in Sault Ste Marie, are not-for-profit bridges. The for-profit bridge that we would be looking at would be the Ambassador Bridge. From our perspective we have enjoyed, especially the Blue Water Bridge and the Niagara Falls bridges, which were covered under the previous international municipal payments act, a very stable taxation situation.
With respect to that stable taxation situation, our financing is done with respect to 30-year bonds. When we're looking at 30-year bonds and going to the bond market for 30-year bonds, we need to recognize a stable environment with respect to the taxation situation. In view of the fact that the Blue Water and the Niagara Falls bridges had enjoyed that under the former international municipal payments act, what we're looking for is the balance of the non-profits to be covered under that stable environment.
With respect to the Peace Bridge, although they were looking at and announced a taxation that was in the amount of $800,000, we had been negotiating with the municipality since about 1979 in order to negotiate an amount of taxation. The negotiated amount of taxation was approximately $300,000, whereas under the assessment base we would be looking at $800,000, and then of course there's another methodology that would be under Bill 149.
What we are looking for is the maintenance of a long-term, predictable amount of taxation in concert with what was in place when those other bridge authorities went to the bond market. Any interruption in that is certainly going to cause them some difficulties in servicing their debt.
Mr Pouliot: I got a lot from your presentation. At every opportunity you keep reminding the committee that -- not the unique but the special circumstances surrounding your non-profit financing arrangements. All of your placements are private placements, are they not? The debentures?
Mr Lampman: The debentures, yes. They're private or institutional in the United States. The reason why we do the placement in the United States is, we have unique taxation practices that are applicable to the bonds. In other words, any investors of our bonds in the United States are exempt on a state and a federal basis. What that does is give us a major tax advantage whereby we gain, so therefore our debt servicing is significantly less than it would be for non-tax-exempt --
Mr Pouliot: You have therefore no government guarantees backing your bonds.
Mr Lampman: No, neither state nor federal in Canada.
Mr Pouliot: What is the average maturity of your bond and what would be a median amount of floating? How much are the bonds for, and over a certain period of time? You've indicated that one would be over 30 years.
Mr Lampman: The general term of our bonds is a 30-year term. That's usually the investment rate.
Mr Pouliot: Okay.
Mr Lampman: Currently at the Peace Bridge we have outstanding bonds in the amount of $53 million. The Niagara Falls bridges, currently the outstanding indebtedness there I believe is about $121 million.
Mr Pouliot: The determinant as to what the coupon rate will be is based on your projected revenue; hence the need for stability.
Mr Lampman: Right. Net cash flows and the stability related to those.
Mr Pouliot: If you were to analogue, to offer a similar but government-backed project like in the province of Ontario, is it your opinion that it would cost 25 to 50 basis points less if it were government-backed?
Mr Lampman: We have never gone to the market with those capabilities because we don't have that in our enabling legislation. However, when talking to our underwriters in the United States, there are a lot of other issues that will be dependent upon the bond rate, but I think that our ability to show them stable net cash flows in the past has allowed us to pursue the bond market very aggressively.
Mr Pouliot: This reads like a series of omissions. It was drafted in a hurry and I don't apologize on behalf of the government, but it's not the way one would conduct their business affairs. It's not due diligence at its highest; in fact, quite the contrary.
Is it your opinion that what you have here is a substitution -- however bad or inconsistent the system is at present, it is a system that you can relate to, for it is a given. The marketplace will relate to it, so it comes out in the equation. However, what you have here, the proposal is sort of a user-pay. It's an unusual levy when you're on a limb there with a 30-year debenture. If I were a bond-rating agency -- let's say you would be more consequential, and why not? -- I would certainly look at the inconsistency. This could play havoc with your financing, could it not?
Mr Lampman: You're absolutely right, because with respect to the $200-million capital plan that I spoke of at the Peace Bridge, there is a series of financings that we are looking at, first of all, in the first quarter of 1998, and another financing in the year 2000 is planned when we're looking at construction of the bridge. So what we're looking for is a stable taxation situation so that we can go forward with our cash-flow projections over a 30-year period.
Mr Pouliot: I understand. I don't know, but candidly this is not the intent and the spirit of 149. Maybe you fall through the cracks or we didn't listen as a Parliament long enough, because these kinds of situations need not be addressed. It's not the intent of Bill 149. You're not out on a limb, but you're out there competing in the marketplace, a dollar's a dollar, in a very volatile environment. Your capital, your coupons are pro-rated over a long period of time and are based on a given. There's some speculation in terms of revenue, but there is no speculation as to the fee that the government will charge you. Now come these people with a user fee, for which you have yet no description, because you don't know that. You don't know how it will be collected. You don't know how often it will be collected. You don't know what will be collected. What are the criteria for the proposed user fee?
The Chair: Mr Pouliot, your time has effectively expired.
Mr Pouliot: Thank you.
Mr Grimmett: I'd like to continue the line of questioning on the revenue-based model. In your brief, Mr Lampman, you've indicated that the bridges you represent support the government's idea to not tax bridge spans, that bridge structures will not be taxed but will be subject to a nominal payment. Let's just get that clear. You support the thrust of Bill 149 in removing bridge spans from the municipal assessment system. Is that correct?
Mr Lampman: Yes, we do.
Mr Grimmett: Why would that be?
Mr Lampman: Essentially we believe there are some significant difficulties in assessing bridge spans, the first issue being that you're looking at an international structure here; hence half of the structure is within the United States. In addition, if you look at one of our binational crossings, which is the Blue Water Bridge at Sarnia, you have half of the bridge being maintained by another country, the Michigan ministry of transportation. Therein lies some difficulty in trying to evaluate what the bridge may be worth because the levels of maintenance that one international government is applying versus the other may not be consistent. I guess the real issue comes down to how you value half a span.
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Mr Grimmett: That doesn't create a lot of certainty for your organizations, the current model.
Mr Lampman: From that perspective. But in addition, when there is a fixed amount, I think it allows the government the flexibility to establish a range whereby they may prescribe these amounts dependent upon these facilities.
In addition, you may have four-lane bridges and you may have three-lane bridges and you may have two-lane bridges. Bridges may be 3,000 feet long; some bridges may be 100 or 200 feet long. You have those varying types of structures that may be there that we would hope would allow some latitude within the prescribed amount.
Mr Grimmett: Let's look at the test model, the Peace Bridge. What has been the experience there in terms of the amount of tax they pay?
Mr Lampman: With respect to the model for the Peace Bridge, we have met with the Ministry of Finance previously and of course there was a very significant project in Canada, totalling $48 million that was going to be constructed on the Canadian side of the facility.
If I may bring another point to bear, we have at the Peace Bridge five members from the United States and five members from Canada, and the US members were very, very sensitive to this. In viewing the model with officials at the Ministry of Finance, we had looked at a range of taxation that was appropriate so that we could go ahead with the awarding of that contract, that was at that point in time in serious jeopardy, mainly because of the construction season fast closing in on us. So there was that issue where we had looked at the model.
In addition, there were some areas in the model that we had looked at, such as land values, imputed rents by the federal government that certainly didn't give us a high level of comfort.
Mr Grimmett: But what is the experience at the Peace Bridge? What are they paying and what have they been paying?
Mr Lampman: The Peace Bridge, at the current time, would be paying over $800,000, based on the current assessment. We have negotiated --
Mr Grimmett: What are they in fact paying, though? Are they paying $800,000?
Mr Lampman: We are in fact paying the last amount that we had agreement with, and there are provisions in the legislation for us to negotiate 1996 and 1997 with the local municipality. So the last amount that the municipality had agreed upon was about $296,000 in 1995. Previous to that, in 1993 and 1994, they had agreed on amounts with bylaw that were less than that amount of money.
Mr Grimmett: What is the experience with the revenue-based model?
Mr Lampman: Can you be a little bit more specific?
Mr Grimmett: Are we not using the revenue-based model now with the Peace Bridge?
Mr Lampman: Not using it at the present time?
Mr Grimmett: I thought we were using that as a test model.
Mr Lampman: In the test model we were, but there were some considerations there and one of the difficulties was the imputed rent for customs and immigration facilities whereby on a market basis we don't believe they would have any value because there is no rent from these facilities and we have to provide the capital infrastructure. In addition, we have to provide the janitorial and maintenance services, so we have some difficulty with the imputed rent there as well.
The Chair: Thank you very much, Mr Lampman. Your time has expired. We appreciate your presentation very much.
ONTARIO GRAPE GROWERS' MARKETING BOARD
The Chair: Would Mr Jim Rainforth, secretary-manager of the Ontario Grape Growers' Marketing Board, please come forward. Thank you for coming today. Could you please identify yourself for the record. You have 30 minutes to use as you wish.
Mr Jim Rainforth: My name is Jim Rainforth and I'm the secretary-manager of the Ontario Grape Growers' Marketing Board.
On behalf of the Ontario Grape Growers' Marketing Board, I thank you for the opportunity to appear before your committee on Bill 106, The Fair Municipal Finance Act, 1997.
The assessment of farm lands has always been of special interest to the agricultural community. This interest certainly became more focused, particularly to the grape and wine industry, in the spring of 1997 with the action precipitated by the local assessment office and their interpretation, particularly as it related to the cottage wine industry in the Niagara region. The interpretation at that time, under the existing legislation, was devastating to this really dynamic industry. The implications to numerous other value added enterprises on farms throughout Ontario were of broad and significant concern as well.
The grape and wine industry, if I can make a bit of an addendum to the paper you have in front of you, has been and continues to be a very significant tax contributor to the treasury of Ontario, so we're used to being taxed fairly highly. On the back of your document there is a page that says where the dollars go. That's not what I'm here to talk about, but I put it in simply as a backgrounder on the taxation issues that the industry does encounter.
One cannot speak about the wine industry, in Niagara in particular and in Ontario in general, without being enthused about its recent past and its foreseeable future. Similarly but perhaps with less publicity, one must reference the value added businesses in other speciality areas of horticulture and agriculture throughout the Niagara region and indeed throughout the province, value added on-farm processing that appeared to be at extreme risk with the Niagara interpretation of the Assessment Act.
The government of Ontario, in particular the Ministry of Agriculture, Food and Rural Affairs, has consistently and strongly supported value added as a concept good for Ontario's agriculture and for the individual farm families involved in value added agriculture. Many value added projects would appear to have been subject to the Niagara interpretation, should that interpretation have gone unchallenged in the spring of 1997.
In addition to the cottage wine industry of regional Niagara, a few examples to cite include the numerous grape juice processing facilities, Ontario's sour cherry industry, which following the free trade agreement of 1987 has moved from selling to a few major companies towards on-farm pitting operations, as well as the peach and apple commodities, which have also moved towards on-farm processing in recent years. I am confident that the non-horticultural on-farm processing value added industry looked with equal concern at the Niagara interpretation to on-farm value added processing as an untenable possibility for those activities as well.
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Ontario's grape and wine industry is heavily oriented towards Niagara in terms of grape production, with our most recent statistics showing 95% of Ontario's vines are located in Niagara. The remainder are largely on the north shore of Lake Erie on the south part of Essex county and the south parts of Kent county, a very thriving young industry in that area but still relatively small.
Growers are investing heavily in new plantings, either on new land or replacement of older vineyards or on land made vacant by the massive removal program of the late 1980s. Our board statistics indicate that some 700 to 1,000 acres of new vineyards have been planted annually for each year of this decade and that's at a total investment cost of more than $10,000 per acre, not counting the purchase price of the land. This is a very substantial investment and one which is quite obviously dependent upon the continued success of the Ontario wine industry.
Indeed our statistics project that by the year 2000, Ontario vineyards will produce nearly 15,000 metric tonnes of the vinifera grapes. These are the grapes that are recognized worldwide as those grapes required for world-class table wines. In 1980, Ontario produced less than 1,000 tonnes of this type of grape, so there's been a tremendous investment and a tremendous improvement in the production capacity of our grape growers to meet the needs of today's successful wineries.
Attached to your presentation are some statistics which cite the tonnage projected to the year 2000 and it shows clearly there that vinifera should achieve approximately 15,000 tonnes by that year. Those are grapes that are in the ground today, some of which have not yet come into bearing. You can see that the grape industry has a heavy investment in the future of the industry and a real interest in the legislation that is before us now.
Favourable action by the government of Ontario in response to lobbying by Ontario's grape and wine industries has in the past helped immeasurably in developing this current positive scenario. This province's support of the industry during the tumultuous times of the free trade discussions led to positive developments that are showing up down the road, some 10 years later, including the removal program, the support program and the support to Ontario's wineries in upgrading their facilities.
The province of Ontario's recognition of the need for Sunday shopping in Ontario's onsite winery retail stores and the permission to use credit cards in all of Ontario's winery retail stores in 1991 aided tremendously in the turning of winery tourism from a small part of the industry into the tremendous success that it experiences today. It's a success story that is widely used as an example of a commodity success story in today's discussions on how to improve an industry or to use as an example.
It is against this background that the assessment interpretation within the Niagara region in the spring of 1997 was especially troublesome. The response to the industry concern and the subsequent action included under Bill 106 have to a large extent addressed the concerns of the grape grower in terms of fairness within the various types of wineries in Ontario and, additionally, would seem to be supportive of fair taxation vis-à-vis the wine industry and non-agricultural taxpayers as well.
I might say that in the interpretations in the spring there seemed to have been some degree of unfairness between the assessment as it was interpreted between the big wineries and the small wineries, and I would commend the government in their amendments for having, among other things, looked after that inequity, and I expect you'll be hearing from other parts of agriculture.
Additionally, it would seem to set the framework in terms of assessment of on-farm processing of agricultural commodities and value added in the broader agricultural community. I referred earlier the sour cherry processing industry. That type of industry would fall very similarly to the cottage wine industry.
In summary, I express again the appreciation at having the opportunity to appear before this committee on this very important issue in the grape and wine industry. It was an issue which posed great potential risk for this and other value added operations in Niagara and in Ontario agriculture generally. It is the position of the Ontario Grape Growers' Marketing Board that Bill 106 seems to have addressed this issue positively and with a resolution that is acceptable to our industry.
Mr Chairman, that concludes my comments.
The Chair: Thank you very much for your presentation. We'll begin questions and it'll be approximately six minutes per caucus. We'll begin with the NDP.
Mr Pouliot: I thank the presenter. You have little to complain about. Diligence had you rectify what would have been damaging to the people you represent, those of the wine industry, but it's not unusual, it's not uncommon. The well-intended administration did correct what could have taken extraordinary proportions.
While listening intently to your presentation, sir, I couldn't help -- since it was the courtesy extended to us, there was not a focus or a specific section or clause in Bill 149, nor did you come forward with some proposed amendment. Simply put, there was nothing wrong with 149 as it impacts, as it pertains to the wine industry.
Therefore, I did avail myself of the opportunity of looking at your projected figures when it comes to Labrusca, to Baco Noir, to Pinot Gris etc, and I thank you. I don't have any real questions because you've given us a tour and the benefits for all Ontarians. I was pleased with the humility at "world-class" table wines.
Off the record, could it be that we have underestimated our capabilities to grow, if there is any such thing, a competitive wine? You cite in your presentation that there's only one metric tonne left from 1980, of the old stock, if you wish, the old grapes, and yet not too long after in wine time -- 17 years is a short time -- and yet less than one fifteenth of your actual metric tonne production will be from the original stock in terms of plantation. What took place in that time, because you're looking at $10,000 per acre? That's quite a commitment. That's quite an investment on top of the price of purchasing the land.
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Mr Rainforth: Many things have taken place. Some have been unexpected and some perhaps predictable. A couple of things: The establishment of the Vintners Quality Alliance, which is a measure of quality you would see on a bottle of Ontario wine. If you look at the neck label at the liquor store or a winery store, you will see a "VQA" under premium quality. That has helped identify Ontario wines as premium wines.
Second, and I credit the previous Ontario administrations for having been very supportive, the Sunday shopping and credit card buying made tremendous differences in the small stores and consequently in the success of the industry.
Mr Pouliot: One last question: While I look at your 1996-97 figures and your projected figures to 2000, it seems the problem with drinking white wine is that it leads to red. I see quite a transition from white table wines and then almost the obligation, the commitment or the preference of the consumer to go to what is mostly a dry red. Am I correct that there has been a change in consumption habits or did you make that happen?
Mr Rainforth: It happened for a number of reasons, one of which I relate back to the support of the governments following the free trade agreement, in which a very significant promotion program was part of the activity. One other very significant happening, I believe, would have been the health aspect of drinking red wine which got wide publicity on US national television program. We are in full agreement with it, of course, but it said that red wine was very good for your health.
Mr Pouliot: Is that something you've been saying for a number of years, but finally the long-awaited studies have confirmed what everybody knew, what you certainly knew, that red wine is good for you?
Mr Rainforth: We would always have known that, I suppose. But it took the 60 Minutes show to focus it.
Mr Pouliot: I thank you very kindly for your presentation, sir.
The Acting Chair (Mr Ed Doyle): We're going to move on to the Conservative caucus. Do we have any questions from the Conservatives?
Mr Grimmett: I too wanted just to mention briefly the chart that shows the tonnage in the different classes. I have to say just as a suggestion -- no criticism of your presentation today -- that perhaps the next time you're here, if you have this kind of chart, it might be helpful if you brought samples so we could maybe take them home and better understand the different products.
Mr Pouliot: All three parties.
Mr Grimmett: Yes, I think we should treat all three parties the same.
I noticed in your brief that you haven't mentioned a whole lot about Bill 149. Are you aware that the bill permits the valuation of land under wine processing buildings to be valued as farm land rather than commercial land?
Mr Rainforth: We are aware of that and we're in agreement with it.
Mr Grimmett: How would that benefit your industry?
Mr Rainforth: What it does, in the provincial assessment office located at St Catharines there was an interpretation of the small winery as to whether it was agriculture, commercial or industrial. The interpretation was that it was industrial, and the entire property then seemed to have been valued as industrial. Along with the market value that was being developed, it meant a tax increase of as much as 1,100% in some small wineries.
Mr Grimmett: Would that have included the fields with the vineyards?
Mr Rainforth: Yes, it was basically the farm, as I understand it. There were considerable meetings in this regard. There were some concessions, I would understand, from the assessment office in their interpretation, but it did not seem to be resolvable without more significant changes than the interpretation by an individual assessment office. This particular decision has basically kept the farm assessment as it was and assessed the winery as industrial. That had the effect of making the tax change much less significant than the initial interpretation. We're supportive of the change that has been made. We think it will be very helpful to small wineries in particular.
The Acting Chair: Now we'll move on to the Liberal Party. Questions?
Mr Phillips: I just applaud your industry. I recall back 15, 20 years ago when there was real concern about the future of the industry, and I think through a lot of hard work and perseverance it emerged into a true world-class product and, no question about it, a great future. All those responsible are owed a debt of thanks because it's good for Ontario.
The other comment I have is about the previous bill, Bill 106, which was the first bill and had several problems in it. I call them mistakes. I think Bill 149 is correcting one of the major problems which would have made, as you just pointed out, your industry susceptible to incredible taxes by counting your land as industrial land. That would have had the potential to do severe damage, if not permanent damage, to your industry. I take it from today's comments that your industry has looked at the current bill and you're satisfied that it fixes your concerns around the bill, that your industry is satisfied with the bill now. Is that a fair interpretation?
Mr Rainforth: We're basically endorsing the bill, as amended.
Mr Phillips: Bill 149? That's fine. I was among those who were very concerned when the original bill came out that it was, let's say, badly done. This is one of the things it has fixed up. I don't have any questions. I congratulate your industry in helping to patch the thing up.
The Acting Chair: Mr Rainforth, do you have anything to add? You still have a few minutes left.
Mr Rainforth: I have a response to the parliamentary assistant and his reference to bringing samples. For the last five or six years our organization has hosted a wine tasting in the restaurant down in the basement. I want to assure you that we will be doing that again this year. You will obviously get notices of it. We look forward to seeing each and every one of you out. We have used this opportunity to help select the wine of Ontario, both red and white, for the last six years now. We look forward to doing it again this year.
The Acting Chair: We appreciate that. Thank you for your comments today.
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INDEPENDENT POWER PRODUCERS' SOCIETY OF ONTARIO
The Acting Chair: We're a little bit ahead of schedule, so we're going to see whether the Independent Power Producers' Society of Ontario has its representatives here. Okay. Gentlemen, if you'd like to come forward, please, and introduce yourselves.
Mr David Kerr: My name is David Kerr. I'm a principal with the Algonquin Power Corp. We're a small hydro developer based in Toronto. We own and operate 22 hydro-electric projects, with nine facilities located here in Ontario.
Mr Bud Carruthers: I'm Bud Carruthers, vice-president and treasurer of Great Lakes Power Ltd from Sault Ste Marie. We are probably the largest independent power producer in Ontario, with 12 hydro-electric plants in the Sault Ste Marie-Wawa area, and interest in a gas-fired cogen plant in Sault Ste Marie.
Mr Harry Goldgut: I'm Harry Goldgut, vice-president, planning, of Great Lakes Power Inc, which is the parent company of Great Lakes Power Ltd.
Mr Kerr: We've prepared a submission for the committee. I propose to use this as an outline for discussion today. This presentation is being made by the Independent Power Producers' Society of Ontario, or IPPSO, as we like to call ourselves.
The membership of IPPSO covers a broad spectrum of energy producers, service suppliers, financiers and interested professionals. The membership, as represented by the private hydro-electric power producers, appreciate the opportunity to appear before the standing committee on finance and economic affairs and make submissions in respect of the Fair Municipal Finance Act.
Who are we? Hydro-electric generating stations are capital-intensive projects which require long-term financing. We actually finance our projects up to 35 years. During this period, the net operating income received by the developer is very small compared to the capital investment. That's due to the high leverage nature of our projects. Property taxes are the most significant element of all expenses, after debt repayment. Any increase in property taxes has a significant impact on the profitability and long-term viability of an independent hydro-electric generating station.
This brings us to what the problem is. In the early 1990s, the assessment division of the Ministry of Revenue changed the method of valuing private hydro-electric generating stations for assessment purposes. This resulted in a significant increase in taxes paid by private utilities.
Those private utilities which have negotiated long-term fixed-price contracts with Ontario Hydro have seen drastic reductions in the real market value of our facilities. This change to a new valuation method on private utilities has had a significant adverse impact on an already very thin cash flow. For private utilities, which distribute power directly to the consumers and can seek annual adjustments to their rates, such as Great Lakes Power, the change meant an increase in the actual rates charged to industrial, commercial and residential consumers.
The increase in property taxes paid was the major contributing factor to the elimination of any new investment in private hydro-electric generating stations and the reduction in value and significant losses faced by many managers of existing private utilities. In fact, we stopped developing a few projects in Ontario only because of the burden of municipal taxes.
Mr Carruthers: I'd just like to add that Great Lakes Power is in the same boat. We have several new projects we could build or some older facilities we would rehabilitate, but we are concerned about the municipal tax level we are paying, as well as the large water power rental charges, in light of today's competitive environment.
Mr Kerr: However, in Ontario the largest producer of hydro-electricity is Ontario Hydro. Ontario Hydro's assessment is determined according to section 52 of the Power Corporation Act. Ontario Hydro is not treated like a private business or citizen. The municipal tax levied on private hydro-electric power producers such as ourselves is substantially higher than the grants in lieu paid by Ontario Hydro to local municipalities.
All private utilities are assessed pursuant to the provisions of the Assessment Act by the Ministry of Finance's regional assessment commissioners. The Ontario government and Ministry of Finance have prescribed by policy direction the manner in which market value for private hydro-electric generating stations is determined.
In determining the value for assessment purposes, the ministry's assessor considers such factors as the royalties paid to the government for water power rights and the installed capacity of the generating station.
On the other hand, Ontario Hydro is exempted from the provisions of the Assessment Act by virtue of section 52(l) of the Power Corporation Act. Ontario Hydro makes payments of grants in lieu of property taxes to municipalities in which it is situated. These grants are set at the rate of $86.11 per square metre of floor area of the generating station where the machinery and equipment are located.
The alternative assessment methodologies for Ontario Hydro and private utilities result in a radical difference between the municipal taxes levied on private utilities and the grants in lieu paid by Ontario Hydro.
By way of example, a review of five generating stations owned and operated by Ontario Hydro indicate that estimated grants in lieu paid by Ontario Hydro under the Power Corporation Act were $508,000 in 1994. If you look at tab A in our submission, we did a calculation of the grants in lieu that Ontario Hydro paid for five existing facilities in 1994. If Ontario Hydro paid taxes the same way as private utilities, that number would be $25.3 million. That's illustrated in the second-to-last column under tab A.
Conversely, for a seven-year period from 1990 to 1996, one of our members paid a total of $48.366 million in realty and business taxes to the local school boards and municipalities where it is situated. If this producer had been assessed pursuant to section 52(3) of the Power Corporation Act, the same way Ontario Hydro is assessed, then it would have paid a total of $1,227,300 in grants during the same period. That calculation is shown in tab B of our submission.
This disparity in treatment is demonstrated by way of another example. The 10.5-megawatt Healey Falls generating station on the Trent-Severn waterway is owned by Ontario Hydro and pays grants in lieu in the amount of $13,571, one tenth of the taxes paid by another member, which happens to be Algonquin Power. We're assessed at $125,000 per year for municipal taxes for a four-megawatt project. This is about 25 times greater than what Ontario Hydro pays in grants in lieu.
In the rest of the world outside Ontario, huge systemic changes are taking place in electricity markets. Electricity is bought and sold in a continental energy market and the walls between jurisdictions which permitted monopolistic rate-making are tumbling. Those producers who will survive in the continental energy market are those who can compete internationally. A significant geographic variation in property tax burdens can create winners and losers in the continental energy market.
The present level of municipal taxes in Ontario is a barrier to economic development and unfair to the private sector in the province. Deregulation will occur in Ontario, either in the distant or near future. Like Ontario Hydro, private producers are looking to the United States as a market for generated electricity. Ontario Hydro has announced that it is preparing for deregulation and intends to compete with all power generators. Unfortunately, due to the unfair municipal tax burden, we cannot compete with a tax-free Ontario Hydro.
For your information, we've enclosed in our package a copy of a request for proposal from Ontario Hydro, which was issued last week, for new power. In there you'll see that they're looking for power from private generators inside the province and outside the province, and any other form of generators outside the province. So we are now competing with generators in the US and in Quebec on a head-to-head basis.
As the government moves towards deregulation and the possible privatization of Ontario Hydro, the burden of taxation on hydro-electric generating stations must be equalized because: (a) private utilities in Ontario and elsewhere in the North American market do not have the benefit of a virtual property tax exemption as does Ontario Hydro, and so are forced to compete unfairly with the subsidized Ontario Hydro; (b) Ontario Hydro facilities could not support the burden of taxation paid by private utilities, and thus a rational taxation policy must be developed; (c) the current burden of taxation on private utilities results in tax levels which are significantly higher than those faced by competitors in many parts of the North American energy market which, if applied to Ontario Hydro properties, would render the privatized plants uncompetitive in the North American market.
What is a rational tax policy? We do not support imposing tax burdens on Ontario Hydro similar to those that are presently imposed on private power producers, nor do we ask for a virtual exemption from taxation such as that enjoyed by Ontario Hydro today. We propose that the province of Ontario set a uniform provincial rate of taxation on all private hydro-electric power producers equivalent to 3% of gross revenues derived from the sale of electricity produced by the taxpayer.
This solution has several advantages: First, it establishes equity between private utilities and Ontario Hydro. Second, it is consistent with the tax treatment of utilities in Quebec, and thus establishes equity with a significant competitor in the continental marketplace. Third, it adjusts downward the burden of taxation on private utilities to a level which results in economic viability.
How can this be accomplished? Section 7(l) of Bill 106 provides the Minister of Finance with the authority to "prescribe classes of real property for the purposes of this act." The ministry has already issued draft regulations under the Assessment Act referring to the classification of real property. We included in tab C parts of that draft regulation.
The industrial property class is deemed under section 5(2) to include "land used to produce or transform electricity." We are proposing that the Minister of Finance use his authority created under Bill 106 to create a new, additional class of real property in Bill 149 to be known as the "private utility property class." This class would be defined to include "land used to produce or transform hydro-electricity."
The creation of such a class is consistent with other provisions in the Assessment Act for the assessment and valuation of public utilities, such as section 27 of the Assessment Act, which interestingly enough are to be assessed as if they were in the commercial property class.
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This technical solution would allow the province of Ontario to establish a tax rate for all properties within the private utility property class based upon 3% of the gross revenue derived by the private utility from the sale of hydro-electric energy produced by the utility at that particular location. The result would permit private utilities to compete in the continental energy market and put Ontario Hydro on a level playing field with the private sector.
The Acting Chair: Thank you very much, sir, for your presentation. We have approximately six minutes for each caucus, starting with the Conservative caucus.
Mr Grimmett: I wonder if you could perhaps comment on how the elimination of the business occupancy tax might affect your industry.
Mr Carruthers: We understand that the real property tax will go up to compensate for it, so at the end of the day we don't anticipate any decrease in taxes.
Mr Grimmett: How did you feel about the business occupancy tax?
Mr Carruthers: Great Lakes Power has had an appeal in to the Minister of Revenue since 1989. We're going into our ninth year of fighting a tax appeal. The current rate of business tax is one of the main issues under that. The difficulty with the business tax as it is written is that there are different percentages for different types of businesses, and there didn't appear to be any logical rationale for that. That's one of the issues of our appeal, whether we're at a 60% rate or a 30% rate, which we won at the Assessment Review Board and lost at the Ontario Municipal Board, and now we're proceeding to the Divisional Court.
Mr Grimmett: You did have one of the higher rates.
Mr Carruthers: We did have a higher rate, of 60%. Eliminating the business tax is fine. Then you get into fighting what's proper property evaluation. Our proposal in here, the 3%, would eliminate a lot of work for the lawyers and assessors because it's very difficult -- you really can't assess hydro-electric plants like a building in downtown Toronto. Each hydro-electric plant is site-specific to the location. It might have a bigger dam, a different size of powerhouse, pen stocks. They're all really site-specific. You really can't come up with a standard formula to apply to a hydro-electric plant. This is one of the things in our appeal, that when we eventually get into the property valuation, we will be going into a detailed appeal on each of our 12 plants, because there's no way we can do it on a common basis.
Mr Grimmett: Your suggestion of a 3% tax on gross revenues, you indicate that's the situation in Quebec. Is that correct?
Mr Carruthers: Yes.
Mr Grimmett: What about other jurisdictions? What about Manitoba and the bordering states? What are their approaches?
Mr Carruthers: In Manitoba, as we understand it, it's all Manitoba Hydro government agency and they pay practically no tax.
Mr Grimmett: Do you know about the American jurisdictions, how they're taxed?
Mr Kerr: Yes, we have seven facilities in upstate New York. It's a little different in New York, where you can go to a municipality and make an agreement with the municipality on tax assessment. You can make an agreement to pay a grant or payment in lieu of taxes. The taxes are assessed on a market value, which is based on revenue of the plant. They do an actual value assessment of the plant, how much revenue it makes, then municipal tax is based on that.
In Ontario it's based on a formula that was devised by the assessment division, that puts value on the dam, the amount of concrete you have, the land you're sitting on, it gives you value based on the water rental rate. It's a complex formula. It doesn't have anything to do with what type of revenue the plant makes.
Mr Grimmett: What would the impact on provincial revenue be of your suggested proposal?
Mr Kerr: It's very little on our side, because in the aggregate we're not a big taxpayer. But it would be a windfall if Ontario Hydro started paying 3% of municipal taxes, because they pay next to nothing in their grants in lieu of taxes.
Mr Grimmett: You're suggesting that this special property class would also apply to Hydro.
Mr Kerr: We're proposing that, yes.
Mr Grimmett: What would be the impact on your industry?
Mr Kerr: Right now the impact on our industry is significant by the taxes we pay. Our projects are so highly leveraged that our free capital --
Mr Grimmett: I'm talking about the potential impact on your industry of the proposed method.
Mr Kerr: It would save our industry. Our industry is in trouble.
Mr Grimmett: What would be the impact financially, though? You've got the figures here.
Mr Kerr: We would pay about a third of the tax we're paying now if we were assessed at the current assessment rate.
The Chair: Mr Phillips, you have about six minutes.
Mr Phillips: I want to try and follow up on that. Roughly speaking, what does your industry pay currently in total realty and business occupancy tax?
Mr Carruthers: I would estimate about $12 million.
Mr Phillips: A year?
Mr Carruthers: Yes.
Mr Phillips: Because the one example you used here said one of your members has paid $48 million in seven years --
Mr Carruthers: That's Great Lakes Power.
Mr Phillips: So you must be the bulk of the industry, then. You're over half of the industry.
Mr Carruthers: Yes.
Mr Phillips: So $12 million a year in property taxes. You're paying business occupancy tax at the rate of 60%, are you?
Mr Carruthers: Correct. That's included in that number.
Mr Phillips: And it's going to drop to 40%, so you'll pick up maybe a couple of million dollars there in reduced taxes. If realty taxes will go up, we're told, by about 40% instead of 60% -- that's our understanding. That's the one piece of good news, I gather, in the legislation.
Mr Carruthers: Our legal advice is saying, "Don't anticipate any changes in taxes." That's good news if that's what it's going to be.
Mr Phillips: If you're paying 60% and it's going to drop to 40% -- you can just work it all out. I think it's somewhere around $2 million. Then your proposal here is that all the industries -- I think what confused some of us, maybe Mr Grimmett and myself, was that your proposal was that the private utilities be charged 3%. You define Hydro as a private utility. Is that right?
Mr Carruthers: Correct.
Mr Phillips: So that's where you get the 3%.
Mr Kerr: In deregulation we will be competing head to head with Ontario Hydro. We see the inequity in that we pay such a high burden of municipal taxes when Ontario Hydro by the Power Corporation Act doesn't pay.
Mr Phillips: If Hydro were to pay at the rate you're paying, have you any idea what they would be --
Mr Kerr: It would be astronomical.
Mr Phillips: Roughly.
Mr Carruthers: I would think on their hydro-electric plants it would probably be about $120 million -- oh, at the rate we're paying?
Mr Phillips: Yes.
Mr Carruthers: No, that would be $350 million.
Mr Phillips: You raise a very interesting point, because we are passing a law now, if we pass the law, where the government -- if they privatize hydro production, they have to be in the industrial class by law. If they're industrial class by law, they have to be assessed at the industrial rate by law. That would mean a $350-million property tax charge, which presumably takes the value of those things down by $3 billion. Is that right?
Mr Carruthers: Yes, at least 10 times.
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Mr Phillips: It lops $3.5 billion off the value of it, which is dramatic. You've focused my mind, at least, and perhaps the committee's mind, on a fascinating issue and on your proposal, I think I also understand, which is to set up a separate class of real property, establish a --
Mr Carruthers: Similar to the pipelines.
Mr Phillips: Again I ask the question: Right now, if we were to do that, you believe your tax payable might drop from $12 million to $4 million or $5 million? Ontario Hydro would go up a similar amount, do you think?
Mr Carruthers: I'm estimating, on a hydro-electric plant, about $120 million.
Mr Phillips: If you make it revenue-neutral, in other words, that the industry pays no more property taxes, you take the 3% down to 2% or something like that.
Mr Carruthers: We're not suggesting that.
Mr Phillips: Frankly, you've raised a huge issue, that the law we will pass, Bill 149, would not permit the government, I don't think, unless there is another provision in here that the minister can do whatever he wants anyway -- as I understand the law, it would require putting it into industrial property, and further back here you give us the regulation that defines industrial property as land used to produce or transform electricity, right? That's industrial property.
If it's privatized -- in other words, no longer part of the Power Corporation Act -- they would be required to pay taxes at the same rate you pay, which is $350 million a year. That changes the value of Ontario Hydro in a quantum way. You've given us the problem and your proposed solution. I now understand a lot better and I can see it's timely that you're here because, as you point out, Ontario Hydro is going to market to buy the stuff you produce from people who don't pay the same tax rate you do. Ontario producers are disadvantaged in competing with their own state protection, if you will, in some respects.
Mr Carruthers: That's absolutely correct. It's the hydro-electric plants that are getting hit with the taxation. A gas-fired co-gen pays practically no municipal tax at all. It's less than one mill, whereas the hydro-electric plants, between our municipal taxes and our water power charges, are paying almost one cent. One of our large customers has recently been approached by a large American utility to sell power into Sault Ste Marie at about three cents Canadian, just over two cents US. We can't compete with the pricing that is coming out there. In fact, our company has recently purchased plants in Quebec and we're looking at building new hydro-electric facilities in the province of Quebec because the tax rate is much lower.
Ms Frances Lankin (Beaches-Woodbine): You just started to touch on the issue I wanted to ask you about: the treatment of co-gen and NUGs. As we enter a period of time where those are becoming in fashion again, what will the impact be? I just wanted to ask a quick question of clarification when you were answering Mr Phillips's questions.
The proposal you have for 3% would effectively cost Ontario Hydro $120 million and some odd if they were to be brought on par with what you pay now, and that was your figure of $300 million and some odd. If they were to be privatized without any change in this legislation affecting the private sector regime, effectively that's a piece of the bill that people have to consider when they look at the economic viability of all this. Could you explain a little bit more to me the issue with respect to co-gens and NUGs?
Mr Carruthers: Under the Assessment Act, the machinery and equipment are exempt from municipal assessment. Basically, a co-gen plant is 95% machinery and equipment. That's where they get all the exemptions. We have an interest in a co-gen plant in Sault Ste Marie. We're paying $160,000 municipal tax on that plant, which produces twice as much power. It's 110-megawatt plant. We also have a hydro-electric plant in Sault Ste Marie that produces 50 megawatts, less than half, and would pay over $2.2 million in municipal taxes. The co-gen produces twice as much generation. We're really being penalized. It's not only the property tax, we are also paying water power rentals to the Ministry of Natural Resources.
Mr Pouliot: On page 5 of your presentation you say, "Unfortunately, due to the unfair municipal tax burden, we cannot compete with the tax-free Ontario Hydro." You did emphasize in your presentation a focus on the competition aspect. Yet I turn to your page 6 and you just as readily acquiesce that there is a difference between your entity and that of the public sector of Ontario Hydro, that they cannot be treated identically.
I take it from your presentation that your mandate is not necessarily to compete with Ontario Hydro but to complement Ontario Hydro. With respect, I'll put it to you this way: We know on the other side of the ledger the liabilities, the obligations. Ontario Hydro at the present time -- it's not a secret to anyone, fully backed by the broad shoulders of the province, is indebted for $29 billion. It also faces a further liability of some $2.9 billion, which is all of our CPP. That fact is not as well known. Plus what looms large indeed is an additional, let's say, $10 billion in the next three to four years to fix the mess, the challenge of nuclear plants.
This will bring their debt to in excess of $40 billion. They're in the nuclear business plan. You tacitly recognize this and you come up with a proposal for which you are to be commended. It's a refreshing proposal. You say 3% of gross revenue, but let me put that in true perspective. Do you believe that your property taxes are about to increase?
Mr Kerr: The property taxes have increased with the new method of assessment. I'll do it by example. We have a project near Kapuskasing that has just been amalgamated by the town of Fauquier. The property taxes, because they became part of municipal taxes -- we were paying Ontario land taxes -- went from $10,000 to $310,000. The concern is, the projects were developed on the basis of a tax payment of a certain amount. When the taxes jump up that much, that project does not make any money. It can't handle its own debt servicing any more.
Mr Pouliot: I understand, but your proposal of 3% of gross revenue, would that not in effect decrease the taxes you pay?
Mr Kerr: Yes. In that situation I just gave you we'd probably pay about $120,000 a year in taxes, which we think is fair and equitable with what Ontario Hydro pays and what Quebec pays. The 3% we're proposing we pay is the same as Hydro-Quebec and the private producers pay the same amount of municipal tax, which is 3%.
The Chair: The time has expired. Thank you very much for your presentation and for coming here today as well.
Is the representative here from Buddies in Bad Times Theatre? They are actually scheduled for 4:30, but because we went ahead a little bit today, we've called them and they're probably going to be able to come a little bit earlier. I'd like to recess until 4:15 please.
The committee recessed from 1550 to 1630.
BUDDIES IN BAD TIMES THEATRE
The Chair: Our last presenter for the day is a representative from Buddies in Bad Times Theatre from Toronto. Are you Gwen Bartleman? Yes. Great. Gwen is the general manager. Why don't you just go right ahead.
Ms Gwen Bartleman: Thank you for the opportunity to speak with you this afternoon regarding Bill 149. A little bit of background, to begin.
Buddies in Bad Times Theatre is a not-for-profit, registered charity dedicated to the production of live theatre. Established in 1979, Buddies began its life as a nomadic theatre company, renting various performance spaces throughout Toronto in which to put on productions. In 1990, Buddies instigated and was part of a consortium called the Edge, which comprised several theatre companies. This consortium was formed to put in a bid as tenant-operator for the city-owned facility at 12 Alexander Street, the former home of Toronto Workshop Productions. The Edge was short-listed and the bid unsuccessful.
A group of independent producers were given the go-ahead to secure financing for their project. The city stipulated that should this financing not materialize within a year, the group would lose the opportunity to act as tenant-operator of 12 Alexander Street. As it happened, they did not secure the financing and Buddies became successful in its follow-up bid to act as tenant-operator for the facility.
Buddies formed a partnership with the Alexander Street Theatre Project and Buddies personnel went on to secure funding from municipal, provincial and federal governments as well as private sources. In March 1993, Buddies signed a 40-year lease with the city of Toronto to act as tenant-operator of the facility.
From 1967 to 1988 the 12 Alexander Street location had been home to George Luscombe's Toronto Workshop Productions. In 1988, TWP closed its doors permanently. When Buddies began renovations in April 1994, the building was in a state of serious deterioration. Buddies, with a great deal of determination and tenacity, hired architects, oversaw renovations; in short, spearheaded the project. In October 1994, 12 Alexander Street opened its doors once again.
There were many surprises that Buddies faced upon moving into the building. Government grants to arts organizations were frozen and in some cases reduced, so that expected increases in grants were not forthcoming. Most important, property taxes for the building, which were originally estimated at $17,000, were reassessed at $44,000. Because of these unexpected costs, Buddies's resources were limited. Although there was an Alexander Street Theatre Project on paper, the reality of the situation was that Buddies board and staff were doing the lion's share of the actual management and operation of the facility, as well as programming and producing 13 weeks of theatre each year. This continues to be the reality of our current situation.
Buddies's total government grants for the 1997-98 season total $216,000. The $44,000 annual property tax amount is equal to roughly 25% of our usual annual operating budget from government sources. With this money Buddies produces 13 weeks of theatre per year as well as acting as the operator for the facility.
Beyond the financing from government sources, there is a licensed cabaret space which also hosts plays, book launches, dance nights and fund-raisers. The main theatre, called the Chamber, is available for rentals throughout the year. The capacity of the cabaret is 100. The capacity of the Chamber is 300.
Originally, the obligations of Alexander Street Theatre Project in regard to the facility were scheduled to terminate upon completion of the building renovations. However, on January 31, 1995, a lease-amending agreement was signed and Buddies and the Alexander project became jointly and severally liable as tenants-operators of 12 Alexander Street. In short, Buddies and the Alexander project are inextricably linked.
Over the past four years there was a tremendous amount of muddled information regarding the different duties of Buddies and the Alexander Street Theatre Project. Most recently, the senior staff management and board of directors of Buddies have taken the initiative to further separate the organizations so that the Alexander Street Theatre Project is directly responsible for the cost of the facility and Buddies in Bad Times is directly responsible for the costs of the theatre that Buddies specifically produces. As lovely as this separation may appear, it remains that Buddies in Bad Times staff members are running the facility. With the high overhead of the building costs, such as the property tax and staffing costs, there is simply not the essential revenue to hire separate management for the facility.
Buddies in Bad Times's profile as a theatre company has most certainly grown in the past four years. The level of activity at 12 Alexander Street is unparalleled in the Toronto theatre community. Currently, the facility employs nine full-time and six part-time employees, as well as dozens of artists, technicians and designers.
Buddies in Bad Times at 12 Alexander Street has very quickly become an asset to many communities. Being nestled in the heart of the gay and lesbian community, much of our programming addresses that segment of the population, but there is so much more in the tradition of Buddies that was brought to Alexander Street, and there has been so much tradition formed already in the four years we've been in the building.
Buddies happily and appreciatively runs the facility. We are overjoyed to have such a home, but it should never be forgotten that it was Buddies who made the successful reopening of the city's facility a reality, and it should never be forgotten that ultimately we are a grass-roots, small organization creating important art in the face of economic adversity.
I urge you to support Bill 149. Exemption from property taxes will mean we can support more artists, create more art, host more community events and provide more cultural opportunities for patrons to enjoy. The artists need the facility, the businesses surrounding Buddies in Bad Times Theatre need this facility, our patrons need this facility, and ultimately the city needs Buddies to continue to manage this facility. We run the building gladly, but an exemption from property tax will give us a much-needed break in this climate that is a challenge for all not-for-profit, city-owned cultural facilities.
Thank you. I'll answer any questions.
The Chair: Thank you very much for your presentation. We have about 24 minutes, so it would mean eight minutes per caucus if you want to take eight minutes.
Mr Phillips: I'm familiar with the organization. You do very good work. I gather your organization has examined the bill and you're satisfied with the bill.
Ms Bartleman: Yes.
Mr Phillips: That's all I need to know. I think there is broad support for the community on the property tax exemption. As I said, your organization clearly has looked at it carefully. I don't think your organization needs to worry. The bill will pass. Probably within four or five weeks, I would speculate, we'll be back in the Legislature.
Ms Bartleman: Have you heard a lot of speakers from city-owned theatrical facilities? Yes? Good. It's important to all of us.
Mr Phillips: Thank you.
Ms Bartleman: Thank you very much.
Mr Pouliot: Not so quick, madame.
Ms Bartleman: Je m'excuse.
Mr Pouliot: You're so articulate. You were reading so quickly. I tried to digest, to assimilate what you were saying. I got some, that without Bill 149 -- you sort of see it as a saviour.
Ms Bartleman: It will definitely assist us in promoting arts in the city, yes.
Mr Pouliot: The Buddies in Bad Times would be Buddies in Rough Shape.
Ms Bartleman: It's not called "Bad Times" for nothing, sir.
Mr Pouliot: This is a direct saving of $44,000.
Ms Bartleman: That's correct.
Mr Pouliot: That's big-time money.
Ms Bartleman: Yes, sir, it is.
Mr Pouliot: You've mentioned that the grants have been reduced or frozen. Was I right with $296,000?
Ms Bartleman: It's $216,000.
Mr Pouliot: I'm sorry; that's even less. Your capacity is -- explain to me.
Ms Bartleman: The capacity?
Mr Pouliot: Yes. You mentioned 100 and 300. I thought it would have been the other way around, that you had 100 there and 300 for the audience.
Ms Bartleman: We have two spaces. We have the cabaret space, which has a capacity of 100 people, and then we've got the larger theatre space, which has a capacity of 300 people. They're actually two facilities within this one building.
Mr Pouliot: If the members of the committee here -- given their busy schedule, it is not highly likely -- would take in the entertainment, how much would it cost them?
Ms Bartleman: Ticket prices range from pay-what-you-can -- a typical Sunday matinée has a pay-what-you-can performance. It ranges from pay-what-you-can to about $20 to $25. We've found that for our patrons, $25 is really the maximum amount of money they can spend to see a production.
Mr Pouliot: You said you're operational about 13 weeks a year.
Ms Bartleman: Buddies in Bad Times produces 13 weeks a year, yes. The rest of the time it is available for rentals.
Mr Pouliot: Like my distinguished friend and colleague, I'll be brief. I'll conclude by saying that it's obvious you need help. I don't imagine that you are sponsored by American Express. I don't get any free air miles when I go and see your theatre repertoire.
Ms Bartleman: No, that's correct. You don't. That's true.
Mr Pouliot: So you like Bill 149. I'm not going to ask you if you like the government. This would be unfair because most of us, in your neighbourhood and in our neighbourhood do not like the government.
Ms Bartleman: Non-partisan. It's just another yard for me.
Mr Pouliot: You are to be commended, Gwen, because what you've said is, "Look, the people I represent benefit." It gives them a chance to live because of the $44,000, and I will not question you further as to what the commissar, what this group of people, the government of the day has in store for people like us ordinary people. That's all I have and hopefully there won't be any amendment to surprise you, because you never know. Good luck.
Ms Bartleman: Thank you.
Mr Doyle: Welcome to the committee. Just one question: I'm interested in the pay-as-you-can philosophy. What do people usually drop in when they --
Ms Bartleman: Standard is $5. Anywhere from $5 to $10.
Mr Doyle: I would imagine with that kind of philosophy that people probably dig a little deeper then.
Ms Bartleman: Sometimes.
Mr Doyle: They may be able to afford $4, but they'll put in $5.
Ms Bartleman: Yes, sometimes. Basically the pay-what-you-can performances cater to the artists themselves, other theatre artists in the city who may not be able to afford it otherwise. It's a tradition in Toronto at this point.
Mr Doyle: It's a nice philosophy. Thank you.
Mr Grimmett: You asked if we had presentations from other theatres, and earlier today we did. We had a presentation from the Professional Association of Canadian Theatres, Pat Bradley.
She made it quite clear that she felt this exemption that you're talking about was going to be of great benefit. You mentioned in your presentation that you thought you might be able to possibly extend -- did you mean you would extend you season with this?
Ms Bartleman: No, but I think that we can offer more opportunities for different artists-designers. The 13 weeks is not necessarily comprised of actual productions. We also do things such as the Antechamber Series. We have six previously unproduced writers and they get a very little amount of money to see their production arrive into fruition. This kind of money would really go directly to the artists and we'd be able to have more programs like that.
Mr Grimmett: Do you see the opportunity to hire more people, then?
Ms Bartleman: Yes.
Mr Grimmett: How about the opportunity to reduce ticket prices? Do you think that's likely?
Ms Bartleman: That's a possibility as well. We definitely don't want to go beyond the $25 mark. We actually used to be less than $25, but we found it economically essential to increase our ticket prices.
Mr Grimmett: Are you considering changing your name, now that the bad times are over?
Ms Bartleman: "Buddies in Good Times" -- I don't know. I think the times will always be a little bit bad for us, you know.
The Chair: Thank you very much for coming today. We appreciate your presentation.
The committee stands adjourned until tomorrow morning at 9 o'clock.
The committee adjourned at 1644.