CITY OF TORONTO, DEPARTMENT OF FINANCE
MOTION PICTURE THEATRE ASSOCIATION OF ONTARIO
ST LAWRENCE AND HUDSON
RAILWAY
CANADIAN PACIFIC RAILWAY
NORTH HILL DISTRICT HOMEOWNERS' ASSOCIATION
ASSOCIATION OF MUNICIPALITIES OF ONTARIO
CONTENTS
Tuesday 21 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
Georgian Bay Land Trust
Mr Christopher Baines
City of Toronto department of finance
Ms Audrey Birt
Young Peoples Theatre
Mr Dean Ott
Daybreak Non-Profit Shelter
Mr Bob Grey
Motion Picture Theatre Association of Ontario
Mr Dan McGrath
Mr Jeff Sullivan
Toronto Theatre Alliance
Ms Jessica Fraser
City of Mississauga
Mrs Hazel McCallion
Mr Jeff Jackson
Urban Development Institute
Mr Stephen Kaiser
St Lawrence and Hudson Railway; Canadian Pacific Railway
Mr Randy Marsh
North Hill District Homeowners' Association
Mr Brian Maguire
Wine Council of Ontario
Ms Linda Franklin
Association of Municipalities of Ontario
Mr Michael Power
Mr Nigel Bellchamber
Brewers of Ontario
Mr Jan Westcott
Ms John Wiggins
Mr Iain Fraser
Ms Ann Zegarchuk
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 Bob Wood (London South / Sud PC)
Also taking part / Autres participants et participantes
Ms Richard Patten (Ottawa Centre L)
Clerk / Greffière
Ms Rosemarie Singh
Staff / Personnel
Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 0905 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.
GEORGIAN BAY LAND TRUST
The Chair (Mr Terence H. Young): The standing committee on finance and economic affairs is now in session. I'd like to ask the representative from Georgian Bay Land Trust to come forward, please. Could you please identify yourself for the record. Then you'll have half an hour to use as you wish. Many delegations like to leave time for questions. If you do that, I will divide it evenly among the three parties present.
Mr Christopher Baines: Excellent. Thank you, Mr Chairman. My name is Christopher Baines. I am president of the Georgian Bay Land Trust, which is a charitable, registered non-profit dedicated to preserving and protecting unique environmental sites on the eastern shore of Georgian Bay. I might note that Bill Grimmett is our MPP for one section of that.
Just a little bit of background about our organization: We've been around since 1991. We have now approximately $1.25 million worth of land, some 400-plus acres, under protection under various mechanisms, both freehold ownership as well as conservation easements. Just for the committee's interest, I can pass along some pictures of one of our latest acquisitions, which cost us some $205,000. We now hold a $40,000 mortgage, which we have to deal with within two years. That's just a little background.
As I said, we're a charitable non-profit, dedicated to preserving and protecting unique sites. There are now in the United States some 1,200 land trusts, with the same purpose in mind. We have two options -- actually three, but two that are used primarily to preserve and protect this land, the first being either purchase or donation of the land by land owners; the second, which was granted to us the year before last by the Ministry of Natural Resources, is the holding of conservation easements. It is for that reason that I'm here today to address the committee.
A conservation easement is, put quite bluntly, a prohibition against development. So if hypothetically a land owner had 100 acres of land and said, "I want to preserve and protect these 95 acres, which are environmentally significant," the way it would work is that the land owner may say: "The five acres I want to keep for my building and potential children in building lots to be severed, but the 95 acres I want preserved and protected in perpetuity. What can be done?" They can approach a land trust such as ourselves or the Nature Conservancy of Canada or they can approach their local conservation authority if there is one or, potentially, the Ontario Heritage Foundation, whatever. There are a number of different mechanisms to answer the question, "How can I best preserve this 95 acres?"
A conservation easement is a registered document on title that says, "In perpetuity, this land shall not be developed." So the 95 acres, essentially, that the individual wants to put an easement on would be taken out of the picture in regard to developability in perpetuity.
The problem that arises now is that although we are granted the right to hold conservation easements and although the land owner will receive a federal tax credit for the diminution in value, there is nothing currently in the Assessment Act which will acknowledge or recognize conservation easements. Consequently, for the owner who has taken the 95 acres out of development, if you will, in perpetuity, that fact is not acknowledged or addressed under the Assessment Act. They still pay or will pay full pop for the 100 acres. That's the problem.
We've just finished, unfortunately, after two years in negotiation with a land owner, a potential conservation easement and dropped it because he was not willing to proceed with us, primarily for the reason that he would enjoy no tax relief, because the current Assessment Act, Bill 106, does not acknowledge that. So we are here today to ask you, as an amendment, as you are doing in other elements of the Assessment Act, to rectify this wrong and to address what the Assessment Act lacks now, which is that conservation easements should be acknowledged within the Assessment Act.
I know that Bill 149 will be doing some fixes to oversights that occurred, including matters such as the theatres in Toronto, the power utility and railway lines, the international bridges and tunnels, and defining new subclasses for assessment purposes. We're hoping that within that we can include acknowledgement and recognition of conservation easements, because without that, quite frankly, we are in trouble, as are the other land trusts, prevented from actively using the mechanism of conservation easements. We were given it on one hand; what we need on the other is acknowledgement and recognition within the Assessment Act so that the land owner will get a lowered assessment, and therefore lower taxes, as a result of registering on title, as they do, in perpetuity, this restrictive covenant. It could be dealt with in Bill 149 under section 9, which adds new subsections to the Assessment Act, section 19.
I should point out for the committee what conservation easements are not. They do not allow us a right of possession. Indeed, in the one we've just discussed for the potential of conclusion but which did not happen, we were only allowed access on to the property two times. So a conservation easement does not include right of possession. Thus, they're not the equivalent of owning and using land.
The problem with Bill 106, quite frankly, as it is right now is that the properties are assessed as though they were unencumbered, because it states that, based on wording used for commercial renting in the definition of "current value."
Actually, policy advisers in the Ministry of Finance said that it will be accounted for in the policy, but this, according to our lawyers, would contravene the legislation and is of no comfort right now to donors or to easement-holding charities. The proposed regulations do not mention, actually, conservation easements.
If you'll look at other jurisdictions in North America, you will see that the new actual value assessment in BC actually does include this. Under the BC assessment act's subsection 26(35) it says that assessors are required to "give consideration to any terms or conditions contained in a (conservation) covenant." What we don't have now is that same sort of wording in the Assessment Act of Ontario, and that's what we need. Indeed, Bill 106 says, "`current value' means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer."
The problem for us is that phrase "if unencumbered." If we can't get, as I stated, acknowledgement or recognition of the conservation easements within the Assessment Act, we effectively are dead in the water, prevented from implementing the wonderful tool that a conservation easement is.
Similar provisions to what I just mentioned in regard to BC are also found in Colorado, Missouri, Michigan, Minnesota and Maine. Indeed, over half the US states which have enacted conservation easement legislation have acknowledged the effect on their assessment act. Vermont has the best example of state, municipality or approved charity-owned easements, which are taxed "only upon the value of those remaining rights or interests" after an easement has been entered into.
Such a provision actually would include -- and that's what we're asking for -- all long-term conservation easements. Such a provision would allow assessors to determine whether values go up or down and whether they are large or small in nature. It allows the assessors to do their job.
I would point out, as a matter of interest, that some of our directors just returned from Savannah, Georgia, where the Land Trust Alliance in the United States just held their rally with some 1,400 land trusts there. Ted Turner was the guest speaker, the billion-dollar man. He has a ranch in Montana that's 283,000 acres that he put a conservation easement on; his Hollywood-star neighbours did the same. The effect of this is that the assessment for his ranch, and those of all his neighbours, has actually gone up as a result of putting a conservation easement, which prohibits development, on the land.
So quite frankly, this cuts both ways as far as assessors are talking. We're willing to take that risk -- we should be so lucky as to be in that circumstance -- but we need that acknowledged. This act allows the opportunity for the government and the Legislature to correct or right a wrong that occurred, first of all, in Bill 106, in the Assessment Act, and that's what we're asking.
A new subsection, subsection (55) in section 19, could be added to address this specific issue. This would be in order, given that other new subsections are being added to section 19 at this time.
So all I would like to do is to reiterate the need for recognition of conservation easements in the conservation-lands, managed-forest and current-value regulations. Those classes are acknowledged under current-value regulations, but what has been missing, as I said, is the acknowledgement or the recognition of conservation easements. The current-value regulations allow municipalities to opt into current-use valuation or designated natural and cultural heritage lands. If you want to maintain these properties in current use, then tax them accordingly.
I'd also like to address the issue of municipal tax rebates. Found in Bill 149 is section 47, which adds a new Municipal Act section, 442.1, I understand. The effect is to allow municipalities to give rebates to charities for tax relief. Now, subsection 2(1) allows rebates to be made only for commercial- or industrial-class properties. This statutory authorization should be extended to all classes of property, such as residential, agriculture or managed-forest classes.
As a case in point, in our own township, the township of Georgian Bay, there is a particular property which we've been very anxious about. They have a problem with capital gains tax. That's not this forum's property, but they have to pay some $650,000. To get that money -- and it's the most environmentally significant property on Georgian Bay -- at the present time they're faced with the challenge of probably having to develop and sell the second-largest development that will have ever occurred, some 35 lots, to get the money to pay the feds. They did another subdivision, paying $47,000 into the township's park fund, a segregated fund. What we attempted to do was to see whether we could leverage those funds, which the same family paid in, to actually help us purchase the environmentally sensitive property. It will be a challenge to see if that can happen, because the legislation doesn't allow that.
This is the same sort of circumstance that we're asking here, that the municipal rebates program be opened up to allow the municipalities certain moral latitude so that in a circumstance such as this they would have the flexibility and the latitude to enter into this agreement, which is really, or could be, a win-win situation. I can provide further details of that as we go along.
This would allow municipalities to make decisions, since some may wish to support rebates to some charities -- for example, in our township, land trusts -- that help municipalities carry out their work and add value to the community. Some lands or owners may not qualify for agriculture or managed-forest rebates, but municipalities may still feel it's worthwhile to provide some rebate. I'd put it to you that we may be in that circumstance, as may be the township of The Archipelago and certain other municipalities. We're not saying necessarily that the municipalities would do this, but if you at least expand the latitude, they may have the opportunity to decide yes or no. Certainly as a registered, charitable non-profit, we would fall within the mandate of what certainly our township, the township of Georgian Bay, as with the township of The Archipelago, feels to be within their purview and contributing to the aims and objectives of the township. It would also be useful to help charities over tough times, given the tight environment for raising funds and the competition from casinos, which is another issue.
That, in a nutshell, is the issue we're after. Again, just to reiterate, it is an addendum to section 19 of Bill 106, the Assessment Act, to allow for the valuing of conservation easements, because if we do not get that, we're not going to be implementing very many of them; at least, I don't believe we will, because there are a lot of land owners out there who are basically saying: "Why should I encumber my land in perpetuity for all of my heirs and their heirs and they still have to pay the full assessed tax on that property, which is undevelopable. Am I crazy?" That's what they say to us. So what we are doing is imploring this Legislature to take a look at righting that wrong so that we can now offer them some redress in regard to that benefit for not only the community as a whole but also the environment.
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The Chair: Thank you very much for your presentation. We have approximately 15 minutes left. In the absence of the Liberal caucus, I'll start with the NDP caucus. Mr Pouliot, you have about five minutes.
Mr Gilles Pouliot (Lake Nipigon): Good morning, sir. It's a privilege indeed. A guardian of the land is the parliamentary assistant Mr Grimmett. I don't think you can find too many people who are more dedicated and committed to seeking equilibrium, a balance on any issue. I say this by way of observation and by way of a compliment as well.
With respect, I find your request most commonsensical, most reasonable. We differ in style in terms of analogy. I would have preferred that maybe Ted Turner -- I was waiting for Bill Gates in terms of the possibility of appealing the assessment figure. You will find with our party, I'm sure, a lot of sympathy there as well.
I have some difficulties, and I need your help in a broadly summarized form. The meshing, the blend between your charitable non-profit and your purpose is explicitly exemplified in the brochure. If you move to a development stage -- would you help me? -- what kind of development are we talking about?
Mr Baines: I'm not sure. It's our intention to preserve and protect land from development. I indicated a specific example, which is to say -- and this is an issue which involves capital gains -- the best property, the most environmentally significant property in our area is threatened by a development where the land owners would have to sell it, basically, to raise the money to pay the capital gains. The land they would have to sell is the most environmentally significant land. MNR has been all over it, Parks Canada has been all over it, the Nature Conservancy; everybody knows this.
Mr Pouliot: So it's oblique, it's by ricochet that you could be more impacted, philosophically. If you are not the resident in a unit, you become subjected to capital gains.
Mr Baines: But that's not the issue here.
Mr Pouliot: No, I know.
Mr Baines: It's a federal issue, that we're working on with a federal MP as well. It's unfortunate, but that's just the way it is.
Mr Pouliot: It's two parallels and so on, but it really does not, with respect, apply --
Mr Baines: No, and I'm not saying it does.
Mr Pouliot: You're non-profit, I agree, not because it's done elsewhere, because you really have no means and it deters what you are trying to do. You're charitable, non-profit. I don't think the land trusts should be taxed. I wouldn't rely on the municipality; I don't know them. But if I may speculate, it could be, with this government, that the townships, in relatively short order, will be after every dollar they can get under the statutes. Not that they wish to impute with passion and vengeance; no, no, it's because the need will force them to look within their jurisdictional capacity at every possible assessment dollar.
Mr Baines: We don't question that. I might point out that in those cases where we own land freehold, we have indeed requested of the municipalities that the land be down-zoned as restrictive as is possible. What we do is, in the preamble of those sorts of requests to council, it's known and stated that it is a recognized public good that these lands will be held for the benefit of the whole community. Ipso facto the mill rate will go up; by zoning these lands down to natural state conservancy or so, it means the effective mill rate goes up for all the other owners. But that's put in the preamble. We have no problem with that, and indeed it's a recognized public good. We don't have an issue with the municipalities requiring every dollar they can get.
What we're saying is that the Assessment Act should allow the assessor the right to say, "Conservation easement; therefore you will be assessed less than the land right next door that does not have an easement on it," because the easement is a prohibition in perpetuity against development. Even though the land owner still owns the land, even though the land owner still pays the taxes, the land owner is prohibited in perpetuity from developing that land upon which he gets an easement. It's that recognition by the assessor to say, "That 95 acres can't be built upon."
Mr Pouliot: I understand. It's a major variance, so the park is missing. The terminology, the definition of what you're doing there, could have been included. I thank you very kindly and I support your position.
The Chair: We'll go to the government caucus now.
Mr Bill Grimmett (Muskoka-Georgian Bay): Welcome, Mr Baines. I certainly have heard a fair bit of information about your organization, and I congratulate you for the work you do. I'm going to ask you a few legalistic-type observations.
First of all, the restrictive covenant that's placed on the property: That's a voluntary act by the owner of the property?
Mr Baines: Correct.
Mr Grimmett: How can it be in perpetuity? I thought there was a 40-year restriction under the statutes that affect land in Ontario.
Mr Baines: Actually, you're correct, but it is --
Mr Grimmett: It's meant to be in perpetuity.
Mr Baines: It's meant to be in perpetuity. I withdraw that. It's not in perpetuity. It is meant to be renewed. Certainly we promote ourselves as an organization that would want it to be in perpetuity. It depends on the agreements we have where.
Mr Grimmett: Okay. That's not that big an issue.
The 5% you talked about is %5 cash in lieu of parkland dedication in the Georgian Bay township?
Mr Baines: In the township of Georgian Bay? Yes.
Mr Grimmett: I don't think that can be used for that purpose. It has to be used for general parkland purposes in the township.
Mr Baines: That's correct. The only reason I stated that is that in regard to the municipal rebates, it's a parallel example, if you will, to say that if they had an opportunity or a mechanism, ie, through opening up the municipal tax rebates, there may be another way they could assist us.
Mr Grimmett: Have you talked to the regional assessment office about the issue of possibly reducing the value if the easement has an impact on the actual sale value?
Mr Baines: Not to the regional office, no.
Mr Grimmett: They should be taking that into account in valuing the property, shouldn't they?
Mr Baines: The problem right now is that they should be, but we're negotiating easements now, and basically the land owners and their lawyers are saying there's nothing in the legislation that assures them that the assessor will take a look at this and that there'll be any redress whatsoever. You may have assurances that it may be in policy and they will take a look at it etc, but a lot of the lawyers are recommending to their clients, "Let's see it in writing," which is what we're attempting to get.
Mr Grimmett: Have you tried to get a ruling at the Assessment Review Board or at the Ontario Municipal Board that might assist you in this?
Mr Baines: No, because again our problem is that we have to get one so we could appeal it. Two of them that we've negotiated now have gone south, as I said.
Mr Grimmett: Are you aware that in Bill 106 there's an exemption for provincially significant wetlands?
Mr Baines: Yes.
Mr Grimmett: And these properties would not fit into that?
Mr Baines: No.
Mr Grimmett: There's nothing in the current legislation that might allow you to value these conservation lands on their current use?
Mr Baines: No, because under current use they are developable. That's the whole point. This land owner is saying that even if you value it and you do it currently and put the conservation easement on it -- it's effectively saying on the 100 acres that 95 of the acres are developable. If the current use recognized conservation easements, effectively you'd say: five acres developable and therefore fully assessed; the 95 acres undevelopable, at least for the 40 years it's registered, as you indicated, and therefore they should be assessed as undevelopable.
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Mr Grimmett: Are you a solicitor?
Mr Baines: No.
Mr Grimmett: Okay. I hesitate to get into this issue because it is rather obscure, but section 9 of the Assessment Act reads, "Where an easement is appurtenant to any land, it shall be assessed in connection with and as part of the land at the added value it gives to the land as the dominant tenement, and the assessment of the land that, as the servient tenement, is subject to the easement shall be reduced accordingly."
This is not the kind of easement that creates a dominant and servient tenement. This is an easement over the whole land. Well, it's not a easement, actually; it's a restrictive covenant.
Mr Baines: Yes. The "industry," if you will, has had a terrible time with the terminology, whether it's a restrictive covenant or an easement, but you're quite correct; this is something new. As I said, we were just granted the land trusts, the right to issue conservation easements, in the last two years. It's out there trying to be used as a tool. The benefit for us is that we don't own the land and we don't pay the taxes. We have all the benefits of protecting the land and none of the liabilities. It's a great deal.
But what has been happening out there, not just with our own land trust but with others, is that when you get into the nitty-gritty of negotiating this, the land owners are saying: "Well, hold on a second. I do all this and I'm still assessed for the full pop? What's going on here? What's in it for me or, more particularly, my children, who won't be able to develop the land and will still have to pay full taxes? According to what I see in the Assessment Act, there will be no acknowledgement of that."
Mr Grimmett: My time is up. I just want to assure you that I'll bring the issue to the ministry.
The Chair: Mr Phillips?
Mr Gerry Phillips (Scarborough-Agincourt): Thank you, I'm fine. I have no questions.
The Chair: Thank you very much for coming and presenting to us today, Mr Baines; a very interesting presentation.
CITY OF TORONTO, DEPARTMENT OF FINANCE
The Chair: Could the representatives from the city of Toronto department of finance please come forward? Thank you for coming today. You'll have half an hour to use as you deem appropriate. If you'd like to leave time for questions I'll divide it equally among the three parties.
Ms Audrey Birt: My name is Audrey Birt. I'm the director of revenue and tax collector for the city of Toronto. With me is Paul Wealleans, the manager of assessment services in my division. Basically, what we've come here to do today is to provide some input into some administrative concerns we have with Bill 149 and also some concerns we have around the way in which it's going to impact on certain groups of taxpayers, not only in the city but across the province. We feel that with a few amendments, some of those impacts can be reduced significantly.
I'd like to start the sections that refer to the treatment and calculation for the 1998 interim tax levy. The legislation requires us to calculate the 1998 tax levy using one of two methods. The first one is to calculate 50% of the previous year's taxes; in other words, 1997 taxes. However, what 1997 taxes include isn't defined other than to just indicate that it should also include the amount that was raised for business taxes on a commercial property.
In many cases in municipalities across the province this would be a simple task, but when you get into larger urban sectors where there are delays at either the Assessment Review Board or the OMB or even in the regular tax adjustments that occur because of vacancies, you can have a very distorted collector's roll for the 1997 year. In addition, you can have other charges that are deemed to be taxes added to the tax roll, everything from business improvement area levies to other charges deemed to be taxes. Without that definition, you can have different treatment for taxpayers across the province.
Of greater concern to us is the fact that even though it allows us to calculate the interim taxes, either based on 50% of the previous year's taxes or by applying a rate against the assessment that will be provided to us in November of this year, both methods require us to apply a 50% cap per property. What that means administratively is that although you may be able to find, hopefully, a very simple means by your system that will calculate an amount, it does mean you're going to have to go back in and review each and every account to ensure that you have not surpassed that 50% cap. As I said earlier, some of the changes or delays that can occur through no fault of the taxpayer or the tax office can indeed impact on those numbers.
Obviously, anything can be done with time and with computer systems. Regrettably, the method used for the 1998 interim is only for the one billing, so it would require us to change systems and apply a method that would only be used once and then thrown away, because 1999 and subsequent years are treated differently and don't appear to have that cap. It is certainly to be noted that the province has responded to the tax collectors' concerns over the years in providing this legislation to arrive at applying 50% of a commercial rate to commercial properties. This was always a problem in the past, where we could only apply the 50% of the residential public rate. Indeed it was a problem for commercial property owners, who could only collect that lower tax from tenants, only to have them move out partway through the year and be unable to collect that additional 15% for the first six months of the year when the final bill hit.
Regrettably, that 50% cap is indeed an administrative problem. I can assure you that I know of no tax collector in the province who is out to gouge the taxpayers. We want to be fair but we also want a system that is administratively simple, and we would ask that you remove that one component that appears to make it much more complex than it needs to be. There are certainly other ways in which it could be limited so that we would not exceed an amount sufficient to raise 50% of the previous year's taxes by arriving at that rate. That would be fine without the cap. It's the application of that cap that turns into a very difficult administrative process.
The other thing that's missing from that section is the treatment of determining the 1997 taxes for those properties where you have received a supplementary assessment for 1997 where it only covered a portion of the year. The bill allows for you to assume a 1997 tax for a property that was not taxed at all, but is silent on the treatment for those where you may have received a supplementary assessment for possibly three months or four months of 1997. It would seem inappropriate to only tax the 1998 interim based on 50% of that, or two months' taxes, when indeed the person is going the be taxed for a full 12 months in 1998.
The whole philosophy is to recognize that the interim tax is meant to be a deposit towards the 1998 taxes. For the most part, it is meant to reflect approximately five or six months of the taxes until both the roll and the budget estimates are passed and the final tax bills can be sent out to ratepayers.
Another area I wanted to cover was the tax relief for commercial and industrial vacancies. Unlike BC, where there is no such relief -- they capture the status of the property once a year and that is the status it remains at for the full year; it's either vacant or it's occupied -- the province has chosen to introduce a bill that provides relief for vacancies. I recognize that this is a concern for commercial property owners. However, the treatment in the legislation appears to be one-sided. It allows for vacancies for unoccupied space, but it does not allow the municipality to obtain offsetting revenue for space that becomes occupied during the year.
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Of course both of those treatments require a significant amount of administrative monitoring, and that will certainly eat into a lot of the benefits we saw from the elimination of the business occupancy tax and the associated assessment monitoring that went with tenancy movements. However, to only provide tax relief for vacancies and not provide the offsetting revenue may mean that we will be faced with some difficult budget impacts. We would request that section 5 of Bill 149 be amended to provide for a supplementary assessment for occupancy during the year for space that was previously vacant.
The next area I would like to cover is the commercial property class, the area of graduated tax rates. As you know, the legislation provides for the council of a municipality to establish two or three bands of the assessment or property for the purposes of facilitating graduated tax rates for the commercial property class. Having been involved in some of the discussions about the impacts on small retail in the city and across the province, it was definitely identified that there was a need to find a means to provide some relief to small business. They are certainly great job creators, and everything must be seen to be assisting them with this reassessment so that they are not harmed.
The difficulty with the three bands is that although it may help the street retail, where you have a single commercial unit and a residential above and where the full value of the property may not be more than $250,000 or $300,000 -- it will be very simple to apply a rate to the value of, let's say, the first $100,000. Where it becomes more difficult is when you have small businesses that are in concourses, large food courts etc in some of the big towers, where suddenly the concourse value might be, at minimum, in the millions of dollars.
To be able to apply a value across the whole class for graduated rate increases, it would have to be very high in order to protect these small businesses. We are recommending an alternative -- and it may be appropriate to allow either method to be at the option of the municipality -- that rather than the bands being based on a value, they be based on a percentage of value. In that case, for example, you may be able to arrive at the first 10% or 15% of value of a building that might more properly reflect some relief for the application of a lower rate for tax relief for small business. We would certainly ask that you consider that, please.
That same section appears to allow the Minister of Finance to make the regulations to permit the graduated tax rates. Because the legislation goes on to say that the Minister of Finance also is to specify the rates, it's unclear whether there is any municipal autonomy there, whether once the municipal council decides to use the tax tool provided to it, it will have the flexibility to determine the rates, or whether it has to seek permission and approval from the Minister of Finance before it can be implemented. We would really appreciate having that clarified.
The next area I'd like to cover is the phase-in program. The phase-in program, as you know, provides for the phase-in of the reassessment impact to be carried over a period of no more than eight years -- it must start in 1998 and it must end in the year 2005 -- and the first year of the eight years must reflect one eighth of the increase or more. The problem with that for 1998 is that we will not have our assessment information and therefore will not be able to implement the first year of the phase-in program in 1998 until the final billing in 1998. That means that the property owners out there getting increases will get a 12-month impact of the first year of the phase-in in year one. It would seem that even if everything else remains revenue-neutral, that will still result in a very significant shift to those property owners who are getting an increase and certainly would not be a good start to any reassessment program.
The proposal that is being made here is that one of two changes be made to the legislation, that either, because of the late return of the roll, you provide an amendment to the act which would allow the municipalities to carry their eight 12-month periods of phase-in into the spring of the year 2006 or that you allow the 1998 year to be pro rated so that it can only reflect a six-month impact of the increases with the balance to be made up over the other seven and a half years. Either way, I think you would find that it would be much more palatable to the taxpayers and less of a negative impact on them.
Taxpayers out there, we assume, especially in the Metro area, are going to be facing very significant tax shifts and tax changes as a result of the reassessment. There are going to be commercial property owners who are also going to be faced with other strains on their cash flow. A simple example, and one that I would certainly like to bring to the province's attention, is the impact of the additional GST that is going to be generated because of the elimination of the business occupancy tax. As you know, most tenants when they pay their rent pay GST on it, and therefore, most of them are able to claim it back, but financial institutions and a lot of the health industry and health professionals cannot claim the GST back. We have calculated that it's probably in the range of around a $30-million to $35-million windfall in non-refundable GST to the federal government. I just raise this as a point, because I would really hope that the province ensures that that $30 million to $35 million comes back into the province.
The other suggestion I wanted to make, also around the phase-in, was to allow us from 1999 onward to spread the impact of that one eighth of the increase over both the interim and the final bill, because again you will run into the same situation. You will consistently have a hit on the final bill that reflects the full-year impact of that phase-in. All we're asking is that the legislation be changed so that we can add that one eighth at the beginning of the year and spread it out over all the instalments, again to ease the cash flow implications for the taxpaying tenant as well as the commercial property owner. There's a chart in the letter to the deputy minister that sets out the two scenarios and how it would work if those changes were made.
Finally, there are just a couple of other things that I thought should be brought to your attention. I know there has been a great deal of lobbying and discussion from TABIA regarding the business improvement areas. Business improvement areas are very strongly supported in the city of Toronto. We feel that they have certainly helped our communities continue to be vital and interesting and promoting a strong multicultural image, so we would certainly like to see them continue. However, there are some issues that really need to be addressed, and it's hoped that because the treatment of business taxes and elimination of business taxes set out in Bill 149 also has an impact on business improvement areas which are treated as a business tax component, that there will be the opportunity to amend the legislation to reflect some very strongly needed changes.
First of all, we are not going to be able to get the appropriate billing information to allow the BIAs in 1998 to pass their budgets until after the roll is returned under the current legislation. BIAs certainly need some money before then. I would like to recommend, because they are also in transition and impacted by the elimination of the BOT and the other changes impacted by both Bill 106 and Bill 149, that for the 1998 year only, that the members that were assessed for the 1997 BIA levies and the property owners who will be shown on the November roll that will be provided by the assessment office on November 30 be considered to be voting members of the board of management BIA for the purposes of approving the 1998 budget and the budget estimates for their BIA. This could even be restricted to those tenants with gross leases who volunteer in writing to their landlord to pay their fair share of the BIA levy, and if that is agreed to in writing, the tenant, on providing a copy of that letter to the board of management, would be able to have the voting rights in all matters relating to the BIA for the 1998 year.
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We recognize that the ultimate desire is to continue to support BIAs, but we do feel that 1998 is going to be a very critical year for them and that there could be a lot of pressure put on some of the owners to basically want to do away with them. I think we need to give them this year of transition to allow them to work as a team and see the true benefits of having a BIA in their community and how it adds value to the properties.
Lastly, the process for the assessment appeals: A couple of concerns have been raised by commercial tenants there about the future assessment appeal process, and it's twofold. Certainly the first one is the fact that a lot of these tenants are the ones who indeed initiate the assessment appeals. It's very important that they be allowed to obtain the appropriate relevant assessment information from the assessor in order to determine whether they wish to proceed with an appeal, and as you know, right now they will not be entitled to a notice other than that which must be provided to them through the owner. I think it will be important to ensure that the assessor is required to provide the same type of information regarding the basis on which they arrived at the value of the property to these tenants as they would be to the owner, as they are certainly impacted by the outcome.
The other concern relates more to the outstanding applications for 1997 and prior years. As you know, the legislation states that any appeals that are not dealt with by December 31, 1997, will move to the new assessment review process. There are certainly concerns that the expertise may not be in place early in the year to deal with some of these long-outstanding complex matters. Because of the fact that many of the delays were not caused necessarily by the applicants themselves but rather by the sheer volumes at the ARB and OMB, certainly it may be more appropriate to allow them to choose whether to have their 1997 and prior years' appeals still dealt with in the two-tiered process as opposed to the new process under just the Assessment Review Board.
Finally, one last comment is more or less a personal concern I have of my own, and that is the move of the province to remove the farm tax rebate from its current program and require it to suddenly be funded by the inhabitants of a local farm community. I have serious concerns about that, because I really don't feel that it is going to meet the government's objective to protect agricultural land, that indeed there will be additional pressure put on those local councils by the inhabitants to transfer farm land over to developers to increase the assessment base and reduce the tax burden. I would seriously ask the province to reconsider its position on this. The same as Toronto is considered the economic engine of the province, I think the farms are certainly the food basket of the province, and it may be that the tax relief is better funded through a province-wide tax such as the income tax base and not put on the backs of just the local ratepayers.
That's my presentation. At this point in time, I'd be very pleased to answer any questions you may have.
The Chair: Thank you very much. We have approximately two minutes per caucus, and we'll begin with the government caucus.
Mr Grimmett: Ms Birt, I want to congratulate you on an outstanding presentation in which you have certainly provided some very constructive advice. Because I'm not an expert in the field, I'm afraid I can't give you very good responses, but I will follow up with my own questions which will probably disclose my own ignorance.
You mentioned in your second point that the legislation permits municipalities to provide relief to properties where there has been a vacancy. I thought that currently municipalities could assess when previously vacant space became occupied during the tax year. Can you not do that now?
Ms Birt: We can do it now. That has been removed, other than to still allow us to pick up supplementary assessments for the 1997 tax year and 1996 tax year over the next two years, but starting in 1998, there will be no supplementary assessment for occupancy. There will indeed always be supplementaries for new construction, for example, but not for tenancy movement.
Mr Grimmett: Is it your understanding that that's the intention of the ministry?
Ms Birt: Yes, because initially the intention was to mirror what occurs in BC, and there neither occurs. They take a snapshot once a year, and that's the snapshot that determines the tax treatment for the full year for that commercial property. There is no relief and there are no supplementaries.
Mr Grimmett: I also found your comment about the GST fascinating, because I wasn't aware of that before, but your point is that if you are a tenant currently in a commercial situation and you are paying business occupancy tax, there's no GST on that, because it's paid directly to the municipality?
Ms Birt: That's right.
Mr Grimmett: But if you pay it to your landlord, you will.
Ms Birt: Yes.
Mr Phillips: One of our problems is that we have no idea how this is going to impact on Ontario. We are being forced to approve a bill, and the government won't tell us what it's going to mean to the people of Ontario. We think that's grossly unfair, but they've got the power and they use it.
But you're in a position to at least give us some indication of what may happen in Toronto or Metro Toronto or the city of Toronto. Is it the expectation that the business occupancy tax will simply be added back on to the commercial-industrial realty tax -- I realize that council hasn't made that decision -- and if that is the case, what sort of increase are we looking at on the base realty tax on commercial-industrial?
Ms Birt: First let me indicate that for the 1998 interim, we are required to raise the 50% of the previous BOT from the commercial-industrial. We cannot spread it out across the other classes. That indeed in itself is going to be significant for commercial property owners.
The other piece, though -- obviously, it's going to depend on an awful lot of the numbers, but some initial analysis we have done has shown that as a rule, across the Metro area and municipalities there will be a reduction for the financial sector, all of those that previously paid a 75% BA rate --
Mr Phillips: Banks and --
Ms Birt: Banks, insurance companies etc -- and there will be an increase for retail, and I believe it averages out to about 140% to 145% where currently they would pay 130%, so let's say, for example, 100% of their commercial realty tax and an additional 30% in the business occupancy tax. When you eliminate the BOT and you have such a high level of 75%ers in an area like Toronto, that does cause a shift on to the 30% range, the retail sector basically.
Mr Phillips: So the banks are going from 75% to 40%.
Ms Birt: That's right. I just caution you to remember too that although the banks are certainly some of the major property owners in Toronto, they also have an awful lot of small tenants, so it is hoped that any relief that is provided to those buildings is also going to filter down to those businesses that are not financial in nature.
Mr Phillips: Yes, but the banks would go from 75% to 40% and the small business or the retail from 30% to 40%?
Ms Birt: That's right.
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Mr Phillips: I agree with your concern on small business. I think what the government is proposing is a tax break for owners of small buildings, not small business people, and it in some respects is replacing what was regarded as an antiquated, unfair system perhaps with another equally unfair system, which is that the landlord of a small building will benefit and the landlord of a larger building won't, but the businesses within it. As you point out, I can be the Second Cup in a freestanding building or I can be the Second Cup at the First Canadian Place and I get treated quite differently.
Ms Birt: Absolutely.
Mr Phillips: I think your proposal is intriguing. I guess we'll have to wait for the government sort of indicating whether that is something that helps to meet my concerns at least about what's going to happen to small business.
Mr Pouliot: We expected, Madame Birt, nothing short of this excellent presentation. Time is indeed of the essence. We're looking, by acquiescence from the ministry, at no less than 500,000 appeals, with 18 months to hear them.
Ms Birt: There are currently about 200,000 outstanding appeals in the Metro area, so 500,000 --
Mr Pouliot: But the cavalry hasn't arrived.
Ms Birt: That's right.
Mr Pouliot: You will see this caravan of misery, madame, the likes of which we have never experienced before, and the commissars will carry the guilt, and we will help them.
We've been telling them exactly what you have been informing us, that starting January 1 you have added responsibility. You will not have the tapes. You are restricted to 50% on the former tapes, 1997 assessment. You will also have a reassessment that will appear four months into your fiscal year, so you become compressed. Your latitude ceases to exist. You either go to the bank, issue debentures or you drain your operating and capital reserve, if you have any operating reserve. This is the lot, and in terms of phasing in, you don't have a choice. You need the money. You have to pay people. Packages for people who will be let go -- we're not even there yet -- can be costly over two years.
The government has a choice: They can slow things down, give a chance to assimilate and to digest, to appreciate your dilemma, or they can just bull ahead and suffer the consequences, because I can assure you, if you get more than 50%, it will mean that those people there have raised taxes systematically and deliberately right away. Politically, they may not wish to do that.
Or you wait. Ms Jones gets reassessed, and within the city of Toronto, there is only one way her taxes are going to go -- big time higher. It is inevitable. It is written. Some of those people date back 40 years in terms of assessment, and you have to value the property worth so much and this is the taxes -- and she will have to pay that? My God, I hope they gather on the lawn to tell those people, because it's your last chance, Commissar. Slow down. Put the brakes on and do what Madame and Monsieur are saying.
The Chair: Thank you very much for coming today and for your excellent presentation.
YOUNG PEOPLES THEATRE
The Chair: Will Dean Ott, general manager of Young Peoples Theatre, please come forward. Good morning. Thank you for coming today. You have a total of half an hour, Mr Ott. If you'd like to make your presentation and leave some of that time for questions, I'll divide that time evenly among the three parties.
Mr Dean Ott: I certainly won't be taking half an hour.
My name is Dean Ott, and I'm the general manager at Young Peoples Theatre. Young Peoples Theatre was started in 1966 by Susan Rubis and is registered as a not-for-profit, charitable organization. We have three main areas of activity: We do theatre performances for families, and we do about 100 performances a year; we do theatre performances specifically for schools, and we do about 130 of those a year; we also run an extensive drama school, with about 600 students through the year.
In 1977, we renovated our permanent home at 165 Front Street East. The building was originally built in 1881 and was originally designed as the stables for the horses that pulled the streetcars. It now houses our main theatre, which is 465 seats, a smaller theatre which is 115 seats, which also doubles as a rehearsal hall, a costume shop, a prop shop and our administration offices. The building has activity scheduled in it for 360 days a year.
Our overall budget is $2.4 million. Our revenue base is as follows: 40% from ticket sales, 28% from government funding from all four levels, 14% from fund-raising, 12% from our theatre school and 6% from other areas such as concessions and teachers' workshops etc.
The production of live theatre is very labour-intensive. Out of our company's total expenditures, 70% is paid out in salaries, not just for the actors but for the designers, the musicians, the craft personnel, the technicians, the teachers and the administrators, all of whom are needed to fulfil our mandate.
In 1997, our total property tax bill was $71,000. If the Fair Municipal Finance Act (No. 2) goes through, we wouldn't need to pay that $71,000. With our not-for-profit status, that wouldn't end up in my jeans pockets; that would basically be dumped back in to produce more work, which would basically mean more employment. It would be a direct result; one would lead to the other.
I know the bill speaks about training grounds. I started in very small theatres. I started as a production assistant, basically fetching coffee, and over the last 16 years have worked myself up to a general manager position. For a lot of our staff, YPT is not a final destination. A lot of our staff, not just the actors but the ticket sellers, the people who raise funds, actually move on to the for-profit, bigger commercial theatres such as Mirvish or Livent. Both Garth Drabinsky and Ed Mirvish have been very vocal about the fact that the not-for-profit sector really feeds their business; that without them, they wouldn't have the labour pool to pull from.
I guess that's basically what I want to say, that with the changes in the funding over the last three years, this certainly would be very beneficial for the not-for-profit, smaller theatres, which I think we need to continue seeing flourish, just because they do base the large, commercial theatres, which are making Toronto certainly a destination for live theatre. That's all I have to say. Any questions?
The Chair: Thank you very much. We will go to questions now. We'll begin with the Liberal caucus.
Mr Phillips: I wasn't clear on support from the provincial government to your organization over the last five or six years. Have you received any support from the provincial government?
Mr Ott: Yes, we have.
Mr Phillips: What's the trend in that?
Mr Ott: It has declined over the last three years by about $138,000.
Mr Phillips: From what to what? Can you just give me numbers?
Mr Ott: From $407,000 to $269,000.
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Mr Phillips: I appreciate very much the support of the bill, and we're supportive of this aspect of the bill. To be perhaps mildly partisan here, the provincial government has cut your funding by $138,000, and the $71,000 break you'll get will come from the property taxpayers, because the city of Toronto will have to make up that revenue by putting it on other property taxpayers. The province has said that it will cut its education part from you, but they've said they're going to recover it from other property taxpayers.
I very much appreciate from your perspective that a dollar is a dollar, and this is $71,000. I just wanted to point out that those taxpayer dollars the province is slashing, they cut you $138,000, and the bill provides you with $71,000, but that's straight out of the municipal property taxes. So while I'm supportive of the bill and this aspect of it, I think one has to be mildly careful of patting the provincial government on the back, because they're the ones that cut you $138,000 and then say to the city of Toronto that they should cut your property taxes by $71,000 to offset what they cut provincially. It's just an observation for the organization, I guess, from at least this seat at Queen's Park. It was not a question; it was just an observation. But I appreciate the work the organization does, by the way. It's fabulous work.
Mr Pouliot: Mr Ott, thank you for your presentation. The term is appropriate: Congratulations. Under Bill 149, to become law, there are winners and losers. There are many more losers. But by ricochet, in an oblique fashion, you are a winner, you bring home some money today. Not that you have a direct association, being non-profit, with the banks, the large conglomerates. They're the perennial, residual winners; they seldom lose. In this case, they win big time.
My distinguished colleague has mentioned that you have a windfall of $71,000. That's money that you can stop paying. The government, on the other hand, has cut your budget. If you're small theatre, if you're non-profit, if you're street theatre, if you're ordinary, when they moved up the food chain, you weren't spared; in fact, you were mugged fairly big time, because, let's face it, people like us don't have the prominence, we don't speak as loudly. With those people, you are advised to say little, if anything. It's better if you are afraid, if you don't stand up.
The $71,000, vis-à-vis $407,000 to $269,000, the words wouldn't be too strong -- I know you don't wish to say this, but I know them. This is a cynical and sinister ploy, and yet, I agree with you that, in your shoes, with respect, I too have to support Bill 149 as it applies to your non-profit, Mr General Manager, Mr Ott. But please take the money and run, because the other presenters will paint them the way they are, a very accurate picture of a chance for the rich, those who can run the fastest and get out of the way.
If you were to go to other committees, people have had it up to here with the bullies, with people who take advantage of the less fortunate in our society, on and on and on. I know I've had it up to here, and I've been here 13 years. I've never worked with the lot of those Reform-aTories. This is not democracy. With those people it's, "Clear the track." Thank you, and best wishes to you, Mr Ott. You're one of the few winners among the bullies.
Mr Grimmett: Mr Ott, good morning. You indicated that the Young Peoples Theatre has two seating areas, one with 465 seats and the other with 115, is that correct?
Mr Ott: Correct.
Mr Grimmett: Is this representative, in your experience, of the size of theatre in Toronto, the famous small theatre community?
Mr Ott: No. I'd actually say we're on the larger end of the small community. I'd say the average seat size is about 200 or 250 for the smaller theatres.
Mr Grimmett: Given that the legislation sets out a 1,000-seat limit for the smaller theatres that would be exempt, can you give us some examples of some theatres around Toronto that might be larger than yours but under the 1,000?
Mr Ott: Yes. The St Lawrence Centre would fall under that. I believe they're 865 seats.
Mr Grimmett: Can you think of any others?
Mr Ott: No, sir, I can't.
Mr Grimmett: Okay. You talked about the importance of the smaller theatres as a training ground. I wonder if you might comment on the impact of your industry on the film industry. I've talked to some people who are in the American film industry and asked them why they're so enthusiastic about coming to Toronto, and they've indicated that it's because of the expertise, industry-wide, that exists in Toronto. I wonder if you might comment on the opportunity for the small theatres to affect this.
Mr Ott: There's a huge crossover, particularly on the technical side. A lot of the people who started in our scene shop, for instance, in scene painting, have now moved over to films. A lot of crossover happens. Our head electrician now actually started in theatre, went to film for a bit and is now back in theatre. So there is lots of crossover. A lot of the actors can't make a living doing live theatre because the jobs are few and far between, but they do a lot of work for film and TV. There's lots of crossover between the two. For anybody we'd be able to train for the theatre profession, it would not take a huge leap to see them move over to film.
Mr Grimmett: You indicated that you would benefit approximately $71,000 if we take the current year's property tax. You said that would probably be used for more employment?
Mr Ott: Correct. Basically, we would be able to produce more theatre, and by producing more theatre we would employ more people.
Mr Grimmett: In what age group would those people you hire likely be?
Mr Ott: I would say they probably average between 20 and 27. Again, obviously some of the actors would be a little older. Maybe the designer might be a little older. But a lot of our technicians and craft personnel are in that 20-to-24 bracket.
The Chair: Thank you very much, Mr Ott, for coming and for an excellent presentation.
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DAYBREAK NON-PROFIT SHELTER
The Chair: Mr Bob Grey, manager of Daybreak Non-Profit Shelter, could you please come forward? The group that was originally to come in at 10:30, the Alliance of Manufacturers and Exporters Canada, is now not coming, so Mr Grey has agreed to present now as opposed to at 11:30. That explains the change in the schedule. Mr Grey, just before you start your presentation, I'd like to explain that you have half an hour. You can use the time as you wish. If you leave time for questions, I'll divide it equally among the three parties here. Perhaps you would be so kind as to identify yourself for the record.
Mr Bob Grey: I have just four of these overheads and they're not too long, so I'm going to have to shuttle back and forth just a little bit. I certainly am not a speechifier, and I don't plan to take up anywhere near one half-hour of your time, but I'd be happy to try to answer any questions. I want to thank you very much for the opportunity to be here today. For what it's worth, I happened to be at the Ontario Non-Profit Housing Association conference on the weekend. It was great to be able to twin coming to see you folks today with that, because I doubt if I would have been here otherwise, just to make a special trip here.
I want to thank you again for the opportunity to be here today and to address a very critical aspect of the Assessment Act for us at Daybreak. It hinges on this first slide, that when one charitable institution leases to another charitable institution, the leasing charitable institution, which is the case here, is not eligible for an exemption from property taxes. For us, this is an issue which is most critical and most important, and I'll explain that as I go along just a little bit.
Most non-profit housing corporations, as you may know, are not incorporated charitable organizations, which Daybreak is. As a matter of fact, we know of only one other similar housing resource in Ottawa that is in a similar situation, again with a church leasing land to a group that's providing social housing.
Daybreak started in 1982. We've been around for a little while. It was started by a group seven centre-town churches in Ottawa. The group's mandate is to address the shortage of affordable housing for single adults with special needs. Daybreak is a community-based and volunteer-driven agency. For what it's worth, I do work full-time at Daybreak Non-Profit Shelter, and one other person works full-time at Daybreak Non-Profit Shelter. I don't know what other groups do or don't do, but I don't think we're overly bureaucratized. We're very volunteer-dependent. We have a core of very committed and dedicated volunteers. We have, for example, an accountant who is a vice-president of Met Life in Ottawa who does our books for us for free, because we don't have any money to pay even a bookkeeper. We also have a lawyer who helps us out from time to time with legal matters as they may arise, again solely on a volunteer, pro bono basis, if you will. That's the nuts and bolts of who is behind Daybreak, to some extent at least.
We're trying to provide supportive housing for single adults with psychiatric and/or substance abuse difficulties. All of these folks are in need of stable, supported housing which is safe and secure. All of these folks are persons with extremely limited incomes.
Daybreak has four houses in total, three of which, because we own and occupy them, are exempt from property taxes, one of which is leased from St George's Anglican Church in Ottawa. Although they're a registered, charitable organization and although Daybreak is a registered, charitable organization, we are not eligible, because of the ownership-occupying requirement in the Assessment Act. The annual property taxes are $18,000 a year. It's an amount we simply are not able to afford. Under the present circumstances that we have, at any rate, the landlord charitable organization, which is billed for the property taxes, passes the bill on to Daybreak, or the leasing charitable organization. Again, in Daybreak's case, this amounts to $18,000 a year.
I'm certain you've never had anyone here before you looking for help or a handout or relief from a difficult situation, but here's the bottom line, and as long as you folks will allow me to stay here I'll just leave that slide there. That's my last one. We do sincerely urge you to consider amending Bill 149 in the instance of one charitable organization leasing to another charitable organization. I understand that the government is presently proposing an amendment to allow for a 40% exemption of property taxes in the case of one charitable organization leasing to another, and I certainly don't want to look gift horses or any other friendly gestures in the mouth, but I've got to tell you most sincerely and as earnestly as I can that in Daybreak's case, this would leave us with a property tax bill of some $10,800 a year, which is an amount that we are still unable to afford. I suppose if it were $50 a year, I wouldn't be here taking up your valuable time.
Yesterday afternoon I had the opportunity of listening to Mr Al Leach, the Minister of Municipal Affairs and Housing, at the Ontario Non-Profit Housing Association conference that was held here in Toronto, and he said two things that stuck out in my mind quite clearly. One of the things he said was that the biggest barrier to the construction of new rental housing in Ontario is property taxes, and certainly we at Little Daybreak non-profit housing can identify with the difficulty that property taxes pose with rental housing.
The other thing that Mr Leach said yesterday is that in the area of housing in Ontario, the government's number one goal is to provide good housing to the neediest and most vulnerable in our society. We at Daybreak are doing that work. We are providing housing to the neediest and most vulnerable in our society, and what we are asking you good folks to consider is that in this instance, as isolated as it may be, when one charitable group like a church has leased land to another charitable group to provide supportive housing to the neediest and most vulnerable in our society, an exemption from property taxes be allowed.
Again, I have to say that over the course of time, because of the three other houses we have, for which we are property-tax-exempt, anyone with whom I've ever spoken at various government levels, bureaucrats or whatever say this is an anomaly that makes absolutely no sense; if a charitable group is eligible for an exemption, they ought to go forth and seek it. In the instance of one charitable group leasing to another charitable group for social good, "It makes no sense, but unfortunately here is the bill, and could you please pay it."
I want to thank you folks very much for your time this morning. I want to ask you again, as earnestly and sincerely as I possibly can, to consider amending Bill 149 in the instance again of one charitable group leasing to another charitable group, and at least in Daybreak's instance, if I could be so bold as to say, providing such a worthwhile service to the community.
The Chair: Thank you very much for your presentation. I'll divide the remaining time among the three caucuses, approximately seven minutes per caucus. We'll begin with Mr Pouliot of the NDP.
Mr Pouliot: Thank you and welcome. You rent, Mr Grey, from a place of worship which is exempt from taxation by that definition?
Mr Grey: Yes.
Mr Pouliot: I read your brochure. Being somewhat aware of the good deeds that you do -- your courage is great -- you are a continuation. You really are a veritable place of worship, those four houses, they are.
Mr Grey: I suppose to a certain extent. From what I understand in terms of how exemptions from property tax may work, people look at square footages and they want to know exactly where the worship is located. We don't actually conduct worship services in the house. We are, however, definitely an extension and an outgrowth of the church community in Ottawa, and without their private donations, we simply couldn't continue to provide our housing either.
Mr Pouliot: I have your mandate here, and it says, "The mission of Daybreak is to provide minimum support houses emphasizing community living for single people with limited income," some of whom are challenged, and you give them a chance to be like the others. That's what Daybreak does.
Mr Grey: That's what it's all about.
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Mr Pouliot: And it's costing you, because you're not the per statute charitable organization; you're a derivative. We all know that, we sense that, but you don't fall within the definition.
Mr Grey: My understanding is that you have to both lease and operate a property and fall within the definition of a charitable organization to be exempt. We have three other houses which we both own and occupy, and we are property-tax-exempt.
Mr Pouliot: Yes, and you don't have a league of lawyers. You mention that when it comes time to reconcile the books, to do the accounting, a financial audit, a good Samaritan does it for free, because you just cannot meet the bills.
Mr Grey, there's an irony in here, and it's not intended. Under Bill 149, what we are here to address is the richer you are the more you benefit; if you are a large insurance company with a lot of floor space, if you're a bank, you benefit a lot; and yet you at Daybreak just don't fit the mould here. You certainly don't fit the mentality of the present administration.
How is Daybreak funded? You get individuals, business, service clubs, private foundations, churches and government grants. By way of a question, how much money do you get from government grants? Has it increased, has it stayed the same or has it decreased over the past three years?
Mr Grey: Over the past three years and even a little bit before that, I suppose, it was decreasing to some extent. Basically what we have is $85,000 to employ two and a half people to provide the support, of whom I am one. I mentioned there were two full-time people, and there is one part-time. I don't know how familiar you folks may or may not be with non-profit housing, but this house is administered under a Canada Mortgage and Housing Corp subsidy, and they subsidize the repayment of the mortgage. There is no provision from their funding stream for anything to do with property taxes -- among other things, for what that's worth.
We provide furnished rooms, for example. We have raised that from the community. We provide furnished rooms for folks who have no money, and its incumbent upon us to find the money other than public money, in other words private money, to do that kind of work.
Mr Pouliot: You're asking that your non-profit situation be recognized by way of an exemption. The people who were here before, Mr Grey, they're okay, because they're a small theatre, they're non-profit. You are non-profit.
Mr Grey: Yes.
Mr Pouliot: That's what it's all about. There's a human dimension extraordinaire. You're helping the marginalized. You're helping people who are down and out.
Mr Grey: Yes, and it's not that I'm just a non-profit-housing provider looking for property tax relief; I'm talking about a registered charity that has four houses, three of which we own and operate and are property-tax-exempt. This one property we lease from another registered charity to provide supportive housing, but because we don't both own and occupy, we are not eligible for an exemption from property taxes. It's not just non-profit housing; it's also that we are a registered charity.
Mr Pouliot: I thank you very kindly, and I thank you, Chair.
Mr Grimmett: Thank you, Mr Grey, for appearing today. From Ottawa?
Mr Grey: Yes, sir.
Mr Grimmett: I wonder if I could ask you a few questions that relate to the actual building you're in. First of all, you estimate that the property taxes are $18,000. How long have you been in the building?
Mr Grey: We've been occupying that building since 1985 actually.
Mr Grimmett: Have you been paying the property taxes since then?
Mr Grey: From 1985 through to 1995, we received a grant from the city of Ottawa to pay for the property taxes. They didn't want to be doing that. All along the way they told us, "You ought to be seeking some long-term solution to alleviate this," and without trying to make any political points, in 1995 they discontinued their grant because of the reduction in transfer payments from the province. They said they were no longer able to afford to do that.
We have spoken with some regional government folks and some school board folks, and there is absolutely no appetite whatsoever, they have said most emphatically, to have us going hat in hand every year or every two years to be looking for relief of property taxes. They also have told us to seek a long-term solution. Along the way, several folks have suggested that I come down and visit you folks some day and ask you to rewrite the Assessment Act.
Mr Grimmett: So that's why you're here?
Mr Grey: Yes, sir.
Mr Grimmett: I don't know the property myself -- perhaps one of my colleagues from Ottawa does -- but the $18,000 figure, is it a single home?
Mr Grey: It's a single home. It's right in downtown Ottawa. It's a rather large three-storey home. We house 10 women with special needs in that house. I don't pretend to understand all the nuts and bolts and detail, but the zoning is such that it could be allowed for commercial use, and I have been told that as much as an eight-storey building could be constructed on the property, and hence the property taxes are $18,000 a year.
Mr Grimmett: If it's a mixed-use property, I understand that the municipality could offer a tax rebate. Is that your understanding?
Mr Grey: I'm not aware of that. The only thing I do know is that we did receive grants for that 10-year period, but we have been told most emphatically and forcefully that those will not continue.
Mr Grimmett: Am I correct in saying that you currently have other facilities and they are owned?
Mr Grey: Yes, sir.
Mr Grimmett: So you don't have that problem with the owned facilities?
Mr Grey: No, sir. Because we're a registered charity and we own and occupy the other three houses and we're conducting charitable work -- I think "relief of the poor" is the old wording from the 1800s -- we are exempt from the payment of property taxes.
Mr Grimmett: Have you explored the idea of having the church transfer the ownership to you?
Mr Grey: We have talked to them about that, because it's the only other long-term solution that we can think of. To be honest, the church has told us that they'll think about that, but they have made no promises to date. It's a big step for them. What they have done is given us a 40-year lease for a rental amount of $50,000, which works out to about $1,200 rent a year, so the church is not trying to make money off Little Daybreak, but they do want to retain their asset.
There are a couple other churches in Ottawa that have given over surplus property. There's a St Andrew's Presbyterian that has a Bank of Canada building on it, from which I gather they're deriving considerable -- or should I say perhaps considerable -- revenue. I can't remember what it is, but it's a lease of 30 years or 50 years, whatever, because the church wants to retain control of its asset. They can't predict the future and what the future may hold for them, and so for the church next door to this house, they have told us that they would be willing to think about it because they want us to stay there, but it would be a big step for them, and it's at a minimum uncertain that they would be able to go to that big step.
Mr Grimmett: In your experience and from talking to the other groups, you are unique in Ontario?
Mr Grey: "Unique" might be a little bit too strong a word, because as I say, I know of one other housing group in Ottawa that is in a similar situation. It's Bruce House. It's a house for persons living with HIV, and it's leased from a Catholic church in that instance. I can't remember the name of the Catholic church, but again because it's a charitable institution leasing to another charitable institution and the sort of end charitable institution, if you will, doesn't both own and occupy the property, they are not exempt from property taxes.
Mr Grimmett: Thank you for your presentation. We'll certainly be considering it seriously.
The Chair: We'll now move to the Liberal caucus.
Mr Richard Patten (Ottawa Centre): Good morning, Bob.
Mr Grey: Good morning, sir.
Mr Patten: I expected your presentation to be a little later, by the way. I'm sorry I missed it, but I gather I know the gist of what your presentation might hold.
I must tell the committee that I know personally this organization, which is a charitable organization and does exceptional work. I visited one of their homes as recently as two weeks ago, and I tell you, if an organization like this cannot survive, it would fall upon government to pay for a lot of people who just would not have the kind of shelter, let alone the quality of work that they do with the individuals who are there. Some people arrive at their shelter in pretty sorry shape, and they work with individuals to get them back on their feet, to develop their social skills, their self-confidence, their capacity to find work, part-time, full-time, that sort of thing. I'm very high on the work they do and I'm familiar with it.
Bob, I didn't hear your presentation, but I have copies of letters that you have said to the Minister of Finance and some copies to me. What you're saying is heretofore you didn't have to pay property tax because it was picked up by the municipal government and that has now, I gather, fallen to the region, and the region is saying they don't have the funds to do so. If you owned the building, there would be no problem, but because a charitable organization leases from another charitable organization, you may be eligible for an exemption of up to 40%. Is that correct?
Mr Grey: That's my understanding of where we're heading right now, and with the $18,000 a year -- sorry, it was on a previous slide -- that would knock it down to $10,800 a year if I've done my arithmetic correctly, and it's still just not an amount that we could afford to pay.
Mr Patten: Do you have an accumulated debt?
Mr Grey: On the property taxes we do, yes. We haven't paid them since the discontinuation of the grant. I don't know if I should be -- is this mike live? I've never been with such an august group of folks before.
For us it's very simple. It seems so anomalous as to be almost silly that with the three houses we have as a registered charity conducting charitable work, where we own and occupy them, we're exempt from the payment of property taxes, and in the instance of this one house, where we rent it from a good group of church folks and provide our social service, because we don't both own and occupy it, we're not exempt. That's perhaps a convoluted answer to your question, sir. No, we have not paid the property taxes since the end of 1995, since the grant was stopped, so the issue is going to hit the proverbial fan pretty soon in terms of somebody wanting to come and help us out, and we thought you good folks would want to do that first.
Mr Patten: What was the rationale for a 40% threshold? Have you ever received an answer about what the rationale is for putting a 40% threshold on the exemption?
Mr Grey: No. I have no idea what the rationale for that is. I am not aware of how that figure was arrived at.
Mr Patten: So with this accumulated money, is your organization threatened?
Mr Grey: Most definitely. At some point it's the real world. There's a bill out there and it's due, and there's interest mounting on it. At some point somebody is going to want that money. It's something that we don't want to seriously consider, but quite frankly, the 10 women with special needs who are living in this house -- we can't afford an annual property tax bill of $18,000; I don't know what we'd do to pay the back taxes right off, but we would have to discontinue the housing there -- I don't know where those 10 women would go. I don't mean to abuse the intelligence of you folks here, but the waiting lists for supportive housing across the province are huge and long. I don't know where those 10 women are going to go, because we're not going to be able to afford to house them in that particular house.
Mr Patten: I didn't catch your full presentation. Did you have a specific suggestion on the rewrite to the section that deals with the exemption?
Mr Grey: Yes. We would like charitable organizations which are leasing from another charitable organization, where one charitable organization owns and the other occupies, to be exempt from the payment of property taxes again like the situation with the three other houses which we both own and occupy.
Mr Patten: I can't see how the committee could turn down such a reasonable request.
Mr Grey: I didn't think anyone would think differently actually.
The Chair: Thank you very much for coming today, and thank you for your presentation.
Mr Grey: Thank you very much for your time. I know you folks have lots of things on your minds and lots of important issues, and I don't know in the great scheme of the universe how important this issue may be, but for the 10 women whom we house and Little Daybreak non-profit housing in Ottawa, this is a critical issue. I thank you for your time and your serious consideration of our request for what seems to be such an anomalous situation of owning and occupying.
The Chair: Thank you very much.
Are the representatives from the Motion Picture Theatre Association of Ontario here? They're not due until 11, actually, so we'll take a short recess until 11.
The committee recessed from 1045 to 1100.
MOTION PICTURE THEATRE ASSOCIATION OF ONTARIO
The Chair: We now have before us representatives from the Motion Picture Theatre Association of Ontario. Please introduce yourselves for the record and go ahead.
Mr Dan McGrath: Good morning, members of the committee. My name is Dan McGrath. I am vice-president of the Motion Picture Theatre Association of Ontario. I'm also vice-president of operations for Cineplex Odeon Corp, based here in Toronto. With me today is Jeff Sullivan, who's a member of the real estate department at Cineplex Odeon.
The Ontario association represents the views of the motion picture exhibitor. Our members include Cineplex Odeon, Famous Players and a number of independent owners throughout Ontario, including Stinson Theatres, Ontario Theatre Group and Tarrant and Tarken Entertainment Group, to name a few.
Our members play an important role in Ontario's economy. We have 670 screens on 162 properties across the province. We employ more than 3,000 people; the majority of those employees are under the age of 21. Our larger members are currently investing in Ontario tens of millions of dollars over the next two to three years, creating direct construction jobs and other spinoff benefits to local communities.
We are here today to enhance your understanding of our industry. As well, we have some technical issues related to Bill 149 that we would like to present.
When people think of movies, they often think of the latest record-breaking attendance or see lines around the corner on opening weekend. More films are being introduced to the market more frequently and with a faster turnaround than ever before. Subsequently, most people think if the movies are successful, then exhibitors must be making comfortable profits. Unfortunately for us, this is not necessarily the case.
In fact, movies that have a short run in our theatres, less than four weeks, for example, are very expensive to us. We must pay a significant percentage to the distributors for exhibiting films. For example, on average, for the first week of exhibition we pay 70% of gross profits to the distributors, the second week 60%, the third week 50%, and so on until we hit a floor of usually about 30%. While opening weekend attendance may be setting records, much of that has to do with the record numbers of screens showing films.
Overall, attendance has been static for a number of years. Over the past 10 years, the North American theatre industry has seen attendance to be flat, in Canada particularly since the introduction of the GST. Competition from video and pay TV movie networks has also contributed to this problem. Even though we are investing by building more and more theatres, we do not necessarily view it as an expansion, given that attendance numbers have been flat. It is very unlikely that we will have significantly more people attending movies -- although we certainly hope to increase attendance if we can -- simply because there are more theatres. We are making investments to provide better service and convenience to our existing customers.
In an effort to compete for the consumer's entertainment dollar, we must make capital and ongoing technology upgrades to improve sound and picture quality so customers feel they are getting value for money for a complete entertainment experience. Therefore, after we pay GST and the province's amusement tax on gross ticket admissions, we are left with dealing with our operating expenses. After payroll taxes, property tax, payroll, rent, film costs and other operating expenses, we are left with very slim profits.
The situation is even more precarious for our independent members, many of whom operate single or double screens. They may be the only theatre in a small, more remote community, particularly in parts of northern Ontario. As independent owners, they cannot afford to be unprofitable, because losses cannot be offset by other, more profitable venues.
These owners are often located on the main street, thereby playing an active and key role in the life and vitality of the community, acting as anchors for restaurants and shops. Some independent owners did not survive the recession and were forced to close theatres. Those that remain walk a fine line for economic survival.
The finance minister has outlined that the objective of the present property tax reform is to provide "all Ontario taxpayers a system of property assessment and taxation that is fair, consistent, understandable and accountable." The province is also continuing to pursue reduction of red tape to business. The elimination of a role for the Ontario Municipal Board in the assessment appeal process is clear evidence of the seriousness of the government in this regard.
We support more fairness in the property tax and other systems and we support the general direction the government is taking in trying to instil equity into the system. However, we are concerned about the tax burden on the commercial class, and significantly our industry. Many of our members require large square footage in strategic locations. As a result, we are often located in high-value shopping malls or retail areas or neighbourhoods. Property taxes in Ontario, particularly in Metropolitan Toronto, are already the highest among our neighbouring jurisdictions. Property taxes in shopping centres have increased significantly in the past 10 years as a total of our operating costs.
With increases in property taxes, we only have two choices to manage these costs: shift them to the consumer or absorb them as an operating cost. Our industry has low profit margins, and the intensity of competition in the movie marketplace precludes us from being able to pass on these costs. We are very close to the consumer price saturation point already. Therefore, we must absorb it as a cost of doing business. The end result is a more limited ability to pursue new investments, hire additional staff or do capital and technology upgrades, all important service enhancements to our customers.
We also have specific concerns about Bill 149, which has differing impacts on our members. Many of the independent theatre owners own their properties. However, Famous Players and Cineplex Odeon lease over 90% of their properties, with the majority of the holdings being in larger urban centres, primarily in the greater Toronto area.
Bill 149 introduces amendments to the property assessment system that significantly diminish the rights of commercial tenants. Ontario legislation has implicitly and explicitly recognized the important role of the tenant as a taxpayer. The Municipal Act treats tenants like owners for the purposes of collecting taxes.
In most cases, commercial tenants are responsible for taxes levied on the space they occupy. Under Bill 149, tenants will no longer receive a notice of assessment outlining the value assigned to their leasehold space. The rationale for this appears to be that with the removal of the business occupancy tax, the apportionment notice which tenants previously received is no longer necessary. However, that notice provided some transparency and accountability in the assessment system. Under the new bill, the tenant has no statutory right to determine whether the assessment upon which the taxes are based is correct. The landlord has no obligation to make such information available to the tenant.
Along with the loss of the assessment notice, tenants have lost the right to appeal the individual assessment on the occupied space. Under Bill 149, commercial tenants have no access to the new process for reconsideration. Tenants are forced into costly new processes requiring formal appeals of the assessment on entire properties in order to resolve individual assessment concerns.
This change is of great concern to theatre tenants for the following reasons:
Theatres in malls tend to occupy non-prime locations of a fairly large size. This has resulted in lower assessments per square foot than other tenants in multi-unit locations, due to the determination of separate values for each tenant.
The proposed reassessment will allow the landlord to invoice his taxes based on one assessment only for the mall; therefore, all tenants may be assessed a proportionate share, which is normally done on a square-footage basis, and specific circumstances as non-prime renters will no longer be recognized.
Theatres currently have a business tax assessment, a BOT, of between 25% and 30% of our premises assessment, a rate much lower than other tenants. Under Bill 149, if a new surtax in lieu of the BOT is added to the realty tax assessment of a shopping centre, we stand to have a much greater tax burden due to taxes being allocated based on proportionate share.
A significant amount of control of tenants' total rent -- taxes -- will be lost. Any attempt to address a tenant's taxation concerns will be difficult, because many landlords will simply not take the initiative to assist the tenant.
These changes are inconsistent with other parts of the bill which continue to afford these rights to tenants for supplementary assessments, corrections of errors, omissions and other assessment changes. In essence, the new system under this bill will unfairly shift taxes to larger tenants and leaves a very limited process of appeal for us.
We have put forth a number of recommendations. In an effort to ensure fairness, equity and accountability, we would like to recommend the following:
That tenants receive notices from assessors or landlords regarding the origin and accuracy of the assessment.
That tenants be allowed access to the reconsideration process related to the assessment notice.
That landlords be required to allocate tax bills based on fair market rents, not proportionate share of square footage.
That any legislation be applied to new agreements only, as many existing agreements we have with our landlords now may not have been entered into at the higher tax burdens that will be put in place with this new legislation.
Thank you for listening to our concerns today. We would be pleased to answer any questions you may have.
The Chair: Thank you very much. We have approximately seven minutes per caucus. We'll begin with the government caucus.
Mr Grimmett: Thank you for your presentation. I'd like to ask first about the issue of the landlords' passing the information on to the tenants about the assessment. It is an issue that we should be taking a look at, because it has certainly been raised by other people. The one point I wanted to make was that from my experience with commercial leases, where the tax is a component in the rent the lease would require the landlord to provide the assessment information as soon as they receive it. That would be standard anyway.
Mr McGrath: In most cases, I believe it is. Is that the normal case, Jeff?
Mr Jeff Sullivan: Yes.
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Mr Grimmett: What you're really looking for, then, is that the government state that in the legislation.
Mr Sullivan: The problem we are concerned is about is that currently we get a separate assessment for our own premises and that's what our taxes are based on. To my understanding, now all there is going to be is one assessment for the entire shopping centre. We can verify if the bill from the government is correct, because the assessment for the entire shopping centre will be there, but we won't know what our portion of the taxes is because we won't have a separate assessment notice for our separate premises.
Mr Phillips: Thank you very much. Is it normal for the theatres to be paying BOT of 25% to 30%? Is that customary across the province?
Mr McGrath: Yes.
Mr Phillips: Based on what we've heard today, our expectation is that every municipality will take the business occupancy tax that they've lost and put it back on realty taxes for commercial and industrial. As a matter of fact, I think the bill itself requires them to do that for the interim tax bill; they have to take the BOT and put it back on. Has your organization done any calculation of what that may cost a typical theatre, regardless of any other change?
Mr McGrath: It's difficult for us to do that calculation until we know exactly how we are going to be apportioned the new realty taxes. The big issue that comes into play is that if instead of paying realty taxes as a proportion of our fair market rent we start paying based purely on square footage, our property taxes will go up immediately and then the surtax will go up as well. We almost can get a double hit with the BOT being added on, but until we know exactly how that change will affect us, it's hard for us to do the calculation.
Mr Phillips: Mr Grimmett raised the point about notice of the assessment, and on the surface that seems reasonable. Now, there may be some reasons it's not reasonable. I gather we're expecting 500,000 appeals across the province, so 500,000 times the number of hours for an appeal is a lot of time. It may be meant to try to minimize the time spent on appeals, but for organizations like yours, companies like yours, it's quite important.
You say, "That landlords be required to allocate tax bills based on fair market rents." Is that what you want, that it must be done on fair market rent, not proportionate share?
Mr McGrath: That's what we would like, yes. As an anchor tenant, we generally pay lower square-footage costs, and also because we have a much lower efficiency use of the large square footage. I mean, any large theatre has a very large footprint and a large square footage we have to take up, but it only gets used for four hours a night, as opposed to most retail tenants, so the efficiency use is very low on that property. If we move to automatically getting just our share of square footage, that puts an inordinate burden on us. If we went to fair market rent, it would be essentially the same way it's done today.
Mr Phillips: What does the proposed bill say currently about how a landlord must allocate the taxes? Does the bill prescribe any approach?
Mr McGrath: I don't believe it does. My knowledge of the bill is that it doesn't. I'm not sure. What we're concerned about is that many of our leases actually say in the lease that if there is not a specific assessment for your property, you will be assessed on a proportionate share. Our lease actually says that, as opposed to Bill 149 saying that.
Mr Phillips: So the bill, in your opinion, is silent on it. The government may be able to help us out there, now or sometime.
Mr Grimmett: I don't have the answer for you right now, but I'll try to get it before the end of the day.
Mr Phillips: In your fourth recommendation, you're suggesting that it apply to new agreements only. If we were to accept your fourth recommendation, if the landlord gets a substantial tax increase you're suggesting that until the new leases are negotiated, taxes be allocated on the basis of existing leases. Is that --
Mr McGrath: Yes, that's essentially what we're saying. When we look at the economics of a project, we take a look at what our total occupancy costs are: rent, property taxes etc. When we look at even a theatre we may be building today, the economics of that lease were done based on the policies that were in effect at the time. If there's now a significant increase in the tax burden, that may or may not have an impact on whether we would have moved forward with that project in the first place, depending on the level of the taxes.
Mr Phillips: It's going to be challenging, I guess. You're speaking on behalf of -- you call them anchor tenants. You and many of the department stores I guess would be regarded as the anchor tenants, and major food stores. The challenge would be that many leases would be negotiated for five to 10 years, so in some respects --
Mr McGrath: And longer. Most we deal with are 20-year leases.
Mr Phillips: What is your own personal expectation? If the bill is silent on how landlords can allocate the taxes, has your organization had any discussion with your major landlords about what their expectations are about how this will be handled?
Mr McGrath: Our expectation is that the first thing the landlords will do is look to the lease to see if the lease actually says anything. If the lease says it will done based on proportionate share, they will automatically do that based on proportionate share, and we don't have anything to argue against that. I mean, that's what the lease says, so that's the way it would be.
Jeff, do we know what percentage of our leases would be silent on that issue and which address it?
Mr Sullivan: A large majority of them would have that statement in them.
Mr Phillips: I remember that when the minister introduced the bill, he said the vast majority of existing leases allowed for a flow-through of taxes. I gather his expectation was that it would be simply flowed through on the basis of existing leases.
Mr McGrath: That's right, and almost all leases would actually have a flow-through. It's just the mechanism of how they're actually flowed through; a change in that mechanism is what we're concerned about.
Mr Phillips: Is there a change in the mechanism proposed in the bill, in your opinion?
Mr Sullivan: Right now, most of our taxes are billed on separate assessment, which is much to our benefit. Should the bill go through, we'll be paying a proportionate share, which is going to shift a large part of the taxes on to the major tenants in a mall, and that will hurt our business.
Mr Pouliot: Good morning, gentlemen. Life-long learning indeed: I was intrigued that the blockbusters are not so terribly lucrative unless they have staying power. Then, using your terminology, you must compete with yourself, if you wish, with many, many screens showing the same movie, so it becomes a self-made competitor.
Most municipal presenters, the reeves, the mayors of councils from across the province, with the devolution and their responsibility for new services, expect municipal taxes to go up. By this they mean the three sectors, residential, commercial and industrial. They also have the ability, under the statutes, to go to a full 50% on the interim tax levy. Our understanding is that this will be inclusive of the identified BOT levy of the previous year. So if some expect a break, a decrease, by virtue of the BOT being decreased, it will not happen. We're talking about the interim tax levy.
My colleague has mentioned that no fewer than 500,000 appeals will be forthcoming. The ministry said that yesterday during their briefing. Mayors are saying that taxes will go up. When the final assessment notice comes to you or to your landlord, there will be a break on the business occupancy tax, but community leaders tell us they will take full advantage of a subclass of taxes. If a dollar is a dollar, the only difference is that you might have to fork over more of those dollars. You will see one hand take away the BOT, and the other hand, at the same time, will come up with the multiplier, the mill rate. They can do what they wish; they have that jurisdictional capacity.
You have a given now; it has also been acknowledged by the government. Most of your leases are fairly long-term, but there are contingencies, sort of an invocation of force majeure vis-à-vis taxes. If taxes go up, there is an adjustment of sorts. The landlord doesn't even have to open the lease; they can pass it along.
I sense in the tone of your presentation that on the eve of passage -- because they have a majority, and at the end of the day, almost inevitably the majority will have it's way. In their case -- well, I won't bore you with their closures and their draconian measures never before seen in the annals of the province. That's their philosophy; I'll leave it at that.
Do you sense that your operations will be jeopardized, and do you sense that the $10 million and more presently being allocated for capital expenditure would have been in jeopardy had we known what is about to take place? Actually, we still don't know, because they keep us in the dark. Would that affect the marketplace? I read that your margin is very thin; you go on volume more than anything else.
Mr McGrath: Exactly. It could. I can't sit here and say for sure that it would or wouldn't have. We'd have to know the specific instances. As I say, we have to look at each lease and determine the economics of every lease before we decide to move forward, but it's quite likely that one or two of the projects would certainly have to be looked at differently, anyhow, before we would decide to move forward, if there was a significant increase in the tax burden. Again, it's very hard, until we know the exact numbers, to determine that.
The Chair: Thank you very much for your presentation today. The committee is recessed until 1 pm.
The committee recessed from 1124 to 1307.
TORONTO THEATRE ALLIANCE
The Chair: We'll continue public hearings in the standing committee on finance and economic affairs. Presenting is the Toronto Theatre Alliance. You have half an hour to use as you wish. If you would like to leave time for questions, I'll divide the time evenly among the three parties on the committee. If you would, please state your name for the record and then go ahead.
Ms Jessica Fraser: My name is Jessica Fraser. I am the executive director of the Toronto Theatre Alliance.
Mr Chairman, members of the committee, thank you for giving me the opportunity to speak to you this afternoon. As the executive director of the Toronto Theatre Alliance, of course it will be from this perspective that I will address Bill 149 and its references to property tax and live theatre.
Firstly, I think it would be really helpful for you to have a little background on the Theatre Alliance and its constituency. The Toronto Theatre Alliance is a service organization with a membership of over 180 professional theatre and dance companies located throughout Metropolitan Toronto. They encompass the broad spectrum of theatrical producers and theatrical venues -- small experimental theatres, classical ballet companies, large public venues, not-for-profit and commercial producers. They are all members of the Toronto Theatre Alliance.
The Toronto Theatre Alliance provides membership services for these people, it promotes Toronto theatre regionally, nationally and internationally, administers Toronto's theatre awards, those are the Dora Mavor Moore awards, and it owns and operates T.O.TIX, Toronto's ticket booth, which is very similar to TKTS in New York.
From its humble beginnings in 1962, when there were only two professional theatre companies in Toronto, the city has become one of the foremost cultural destinations in the world. Toronto ranks as the third-largest theatre centre, after New York and London. More than seven million people attend live theatrical performances each year in 70 venues across the area. We -- and that's all of us: producers, umbrella organizations, governments and the media -- have done an excellent job of getting this message out. Cultural tourists come to Toronto in droves. Corporations locate here because of the quality of life for their employees, and citizens enjoy a vibrant downtown core thanks to the glittering and dynamic presence of live performing arts. On any given evening, patrons can experience a virtual smorgasbord of theatrical delights.
It is really important to note that none of those different kinds of theatres work in isolation from one another. They are all interconnected. There is what I call a very complex feeding chain. Not-for-profits which own theatre venues rent to smaller not-for-profits which don't. Large public venues rent to both commercial and not-for-profits. Commercial producers will be the first to tell you that they rely on the publicly funded, not-for-profit theatres as a training ground for talent both on stage and behind the scenes and that they credit public funding for a big part of their commercial success. There are co-productions and co-co-productions. There are co-productions between two not-for-profits and co-productions between not-for-profits and commercial producers.
A cultural centre is not comprised of one or even two theatres. It requires all the layers, all the genres and all the diversity. Conversely, in the last few years Ontario's not-for-profit performing arts companies have also experienced a significant erosion in public funding. From the Ontario Arts Council alone, $17 million has disappeared; $2.9 million of that is from theatre programs. This cut, in combination with others from government funding agencies at the municipal and federal levels, has seriously threatened the fragile ecology of the performing arts in Ontario and indeed the very future of some of our not-for-profit theatres.
This is the reality on which Bill 149 will impact. As the executive director of a very complex organization representing a widely diverse membership, my comments today must also respect that diversity and the varying influence this bill will exert on their operations.
First of all, the Toronto Theatre Alliance applauds and commends the government of Ontario for its proposal to exempt theatres of under 1,000 seats from property tax. While this exemption can never make up for the revenue lost due to reduced funding, it certainly will ease the pain for some of them and will level the playing field in the not-for-profit sector. Removing this property tax will allow those venued companies to rent their facilities to smaller companies at reasonable rates, thereby ensuring the continued creation and production of indigenous Canadian theatre and dance.
Secondly, it is my understanding that a subclass has been proposed for large commercial theatres. This too we applaud. It is imperative that Toronto's commercial producers have the ability to compete globally. This is a high-risk, labour-intensive business and therefore very costly. Their productions drive the industry and create interest in the other genres of theatre produced in the city.
My greatest concern regarding the changes proposed by Bill 149 lies with the not-for-profit public venues, theatres which do not produce their own work but which host both commercial and not-for-profit productions throughout the course of a year. Currently, these theatres are exempt from property tax. Their mandates commit them to promote and advance artistic, musical and cultural productions for the benefit of the public. I believe that another benefit of not taxing these institutions is that the profits generated by commercial productions make their venues more financially accessible to not-for-profit companies or, in the case of a theatre like the Elgin, for heritage projects across the province. If these theatres are taxed based on 50% plus usage by commercial productions, I am concerned that the increased costs to the theatres will be passed down via higher rental rates to the not-for-profit companies. This has the potential to seriously damage that fragile ecology which I mentioned before.
I also wonder what the status will be for large not-for-profit companies who own and operate a venue of over 1,000 seats. I am thinking especially of the proposed opera house and what Bill 149 will mean to the Canadian Opera Company. I'm not sure that this eventuality has been captured so far by the bill.
It is in the best interests of all Ontarians to protect the infrastructure of Toronto's performing arts industry. We all want Toronto to be a vibrant, healthy artistic centre. We want lots of theatre. We want a large theatre-going public. We want pages and pages of theatre and dance listings in the media. With the proposed legislation of Bill 149, I urge you to consider not only protecting this fabulous cultural centre but also ensuring that it flourishes and that it keeps Toronto, Ontario and Canada front and centre on the world stage.
The copies you have of Westways magazine, I just gave to you because there's a wonderful article on theatre in Toronto; it starts on page 39. I think you would enjoy it, and I think it would give you just a little glimpse of the esteem this theatre community is held in throughout the world.
The Chair: Thank you very much for an excellent presentation. We will now go to questions from the three caucuses. It's about seven minutes each. We'll begin with Mr Phillips from the Liberal caucus.
Mr Phillips: Thank you for your presentation. You indicated earlier that provincial funding to your organizations has been cut by $2.9 million?
Ms Fraser: To the theatre companies throughout Ontario, yes; from the Ontario Arts Council.
Mr Phillips: Do you have any idea of what the total reduction in taxes will mean to your group?
Ms Fraser: I believe it will mean several hundred thousand dollars, probably about half a million, but I do not have accurate figures. This would be something I'd have to do research for, but I'd be happy to do it if anyone needs that.
Mr Phillips: That would be interesting to us. I just have an observation, because I think you used the phrase "congratulate the government on this."
Ms Fraser: I said "commend."
Mr Phillips: Commend. I can't read my own writing; "commend the government." I would just point out -- and I'm in opposition, so I tend to look at the opposite view -- what the provincial government has done is cut $2.9 million worth of support for your groups, and then they've ordered the municipalities to essentially take in $500,000 less revenue from you. So it costs the provincial government zero; it costs the municipalities $500,000. I don't want to get you in the middle of a political argument here, but it's essentially downloading on to the municipalities. The government gives you the gift and then asks the property taxpayers to pay for it.
I point that out because we're supportive of encouraging the arts community. Quite apart from the cultural advantages, it is a tremendous economic opportunity for us. You drive through Rochester and Syracuse and you see tours coming to Toronto -- not to New York City but to Toronto -- for the theatre. I appreciate that it's a terrific tourism attraction.
I would just caution us to recognize what the government is doing here. As I say, they're essentially saying to municipalities, "We're ordering you to take $500,000 less revenue." We're taking $500,000 less revenue from you so we can give the cultural community a "gift" paid for by the property taxpayers. That doesn't take away from our support, but as you are recognizing who to thank, I would be going to the mayors and saying: "Thank you very much. The government has ordered you to do this, and we appreciate it." The municipalities have two choices: They cut services or they put the tax on to some other property taxpayer. So I'm supportive of the direction, but I think when we are commending somebody, that's probably who, in the end, you might want to take a moment to thank.
I just want to be sure I understand your concern, in your last point, about the implications for the opera house.
Ms Fraser: The opera company is a not-for-profit, charitable organization that is planning to build the opera house, which will have more than 1,000 seats. From my understanding of reading the bill, when we're describing large commercial theatres, the opera company is not a commercial operation; it is a not-for-profit, charitable organization. But it is going to have a theatre space that will be larger than the 1,000-seat cutoff. That's why I wondered how something like that would fit into this legislation.
Mr Phillips: As I read the amendment, the intent is that in Metropolitan Toronto there will be some special consideration for theatre. You don't think this would catch the opera house, then?
Ms Fraser: I don't think it does at the moment.
Mr Phillips: Has your group expressed any view on treating Metro Toronto differently than you would treat the Grand Theatre in London?
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Ms Fraser: No. I'm speaking just strictly from Toronto because that's my mandate.
Mr Phillips: I see.
Ms Fraser: What I should say is that the difference between the opera company and the hummingbird is that the opera company does produce its own work. so you have those large theatres like the hummingbird which are hosts and presenters, but the opera company, when it has its own venue, will be producing its own work. That's where the difference is.
Mr Phillips: This is a politician's dream, actually: to get a lot of pats on the back and have someone else pay for it. In this particular case, the provincial government will get lots of pats on the back from organizations like yours and then have the costs borne by the property taxpayer. Now, there's only one taxpayer. It's just, who do you pat on the back when you thank them? I appreciated your presentation. I thought it was very helpful for us.
Mr Pouliot: Thank you, Madame Fraser. Welcome. In Luxembourg, they say la culture est dans votre nature. If it were in the theatre, this kind of displaced theme of the government, those conjurers of illusion -- you see, one hand takes $2.9 million, guts the soul, from those who can least carry the burden, and then this kind of cheap theatre has somebody else picking up the bill. In this shell game, some of us believe that they are experiencing remorse and that they're giving the money back. But there is no such thing with this sorry lot. They're not inclined that way. The philosophy with them is that when things go bad financially, you will be expendable, you may be the first one to suffer; but when things go good, you will be the last one to benefit.
I read your page 39 with a great deal of interest. Thank you for your reference. If we're to develop the theme, it takes on extraordinary proportions, it lives, it is vibrant; yes, the third mecca of theatre in the world.
Ms Fraser: It's quite something.
Mr Pouliot: Your right: The caravan of people gather from all places to see live theatre in Toronto. The multiplier is unknown. We don't know how much is being spent in terms of accommodation, in terms of restaurants.
Ms Fraser: Certainly Tourism Toronto has all those facts. We know that visitors are returning an average of 17 times to Toronto. We know they indicate that they go to live theatre more than to our sports teams or other attractions in the city, so it is a huge draw.
Mr Pouliot: You mentioned a subclass. I need your help. I was left with the impression that a subclass will afford you an opportunity to reduce your tax burden.
Ms Fraser: I thought that's what was indicated for the commercial theatres. That's what I understood from my reading of the bill, that there would be a subclass for large commercial theatres.
Mr Pouliot: I see. Again, au contraire. For us, a subclass means an opportunity for the municipality to go and get what they're losing under other provisions of the bill. So we have a different opinion of subclasses.
On a positive note, I thank you for mentioning democratic theatre, those who have less, if you wish, whose brochure is not that well-bound or glossy but who mean so very well. They will benefit because they are, for the most part, non-profit; they invite fewer than 1,000 people, and are therefore of moderate means. I'm happy you mentioned that. They hope for a debt of gratitude, and in this case with the government, yes. Isabel Bassett -- not singlehandedly; there were others, and it wouldn't be fair to the others. But she certainly came to the forefront to represent those people, and today, not so ironically, she is the Minister of Culture. I don't think the government could have been more judicious in their appointment of a person at this time to be the Minister of Culture. I was delighted with the announcement.
On Bill 149, how significant will the few thousand dollars you won't have to pay be?
Ms Fraser: For some of the not-for-profit theatres? It's hard to know. Each theatre will have to make up its mind about how they will use that adjustment in the funding. What I find is that most of our theatres tend to put all their resources into production, so it may mean they can do an extra production in the year; it may mean they could do better materials, like you said; it may mean they can bump up the production qualities of a show. In any of those cases, particularly if they decide they have the resources to do another show, that could also perhaps mean some jobs, because it would mean that actors or a director or whatever would be hired for another show.
Theatres were downsized before downsizing became a buzzword that we all know. Theatres operate, for the most part, on a real bare-bones administration. I'm sure that at most of the not-for-profit theatres, at least the smaller ones, for at least three years their salaries have been frozen, not making a lot to start with. It'll be interesting to see.
Mr Grimmett: I want to congratulate you, Ms Fraser, for demonstrating the world-class nature of the Toronto theatre industry by bringing the magazine from California? It's a travel magazine?
Ms Fraser: Yes, it is. It's a travel and leisure magazine. I'm sorry that it's a year old. We had extra copies, and I just thought -- if you wanted to do a piece on Toronto theatre, you couldn't have hired someone to do a better job.
Mr Grimmett: Exactly. I take it that the American market is very significant for Toronto.
Ms Fraser: Yes, it is. I attend a lot of media marketplaces, usually the ones hosted by the Canadian government, where we meet with about 100 travel journalists and try to generate stories. It's not hard to generate stories, to get them to come to Toronto and experience our theatres in all their forms.
Mr Grimmett: We've heard from presenters before you that the Toronto theatre industry is a breeding ground for more experienced people in the industry; that they move on from the smaller theatres to the larger theatres and sometimes into other media. I noticed in your comments that you mentioned dance. Could you comment on how big a proportion of the theatre business would be dance?
Ms Fraser: I guess probably about an eighth of our members are dance companies, but it's the whole range: It's the National Ballet, it's Toronto Dance Theatre, it's Canadian Children's Dance Theatre, Danny Grossman, Desrosiers, and then the feet at the fringe, the individual dance artists. It's a fair bit of work, but it's quite small in comparison to traditional theatre.
Mr Grimmett: Is it the same experience, where the younger, inexperienced dancers would go into the smaller theatres and gradually move up to the larger entities?
Ms Fraser: I'm not sure that dance works quite the same way, because I think it's more the styles of dance. You have the modern dance companies, the avant-garde dance companies, and then you have your classical ballet. I think if you're going into classical ballet, you would go to the National Ballet and you would work up to that from somewhere else rather than one of these modern dance companies; I don't think it quite transfers.
Mr Grimmett: You mentioned in your comments about Bill 149 a concern about the way it treats larger commercial operations. Are you aware that the government has proposed an amendment to Bill 149 that would allow the municipalities to reduce the payments in lieu if the larger commercial operations could demonstrate that they're providing benefit to the not-for-profit?
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Ms Fraser: That's what I thought it meant and that's why I said yes, I really support that, because of what I also said about it being such a huge risk to put up commercial productions, huge costs. Our commercial producers are competing with theatres in New York, for example, that are given a municipal theatre, with no taxes to pay. The cost to them to put it on and the ticket prices they're going to charge to be able to get it make it very difficult for a commercial producer here in Toronto to try to get that property and put it here, because it's going to cost way more.
There's no question that they don't operate without each other. The commercial market was built on the success of the not-for-profit market that developed during the 1970. The first show that was hugely successful, a long-running musical, was Cats. In our industry, we talk about BC and AC, before Cats and after Cats, because that's when it got proven that Toronto had the market to have a long-running musical. At first there was a kind of uneasy relationship before not-for-profit theatre and commercial, but now there's a real understanding that it takes the two of them, because the big commercial theatres can and do drive the industry in that they can do the kind of promotion and marketing that the smaller theatres can't. We find that tourists, for example, will book the big-ticket shows, Phantom of the Opera, for example, months before they come. Our not-for-profit theatres tend to do three-week runs. So they book the long-running one; when they get to town, they find out what else is one and then they book their tickets for the other ones. We find that right through our operation at T.O.TIX. There is no question that there is a benefit to the not-for-profit theatres from the commercials.
The Chair: Thank you very much for an excellent presentation.
CITY OF MISSISSAUGA
The Chair: I call the corporation of the city of Mississauga, Mayor Hazel McCallion.
Mrs Hazel McCallion: Mr Chairman, thank you very much for the opportunity. I've been down to many standing committees. I don't know how successful they are, but I'm here again.
The Chair: Mayor McCallion, for the record, will you please identify the gentleman who's sitting with you as well?
Mrs McCallion: Jeff Jackson, who is in charge of finance for the city of Mississauga. We also have our commissioner of finance and corporate services here. We have our solicitor here as well.
The Chair: Would you like to have them come forward?
Mrs McCallion: Yes. That would be great.
I believe a detailed brief has been distributed to you on the items I'm going to be addressing today. The first statement I would like to make is that the figures the province is handing out indicate that it's going to be revenue-neutral, with no tax increase. I can assure you, until Bill 149 is passed, I don't know how anybody could make such a statement. In Bill 149, there is any number of items that seriously affect the taxes of the municipality and would clearly have an impact on any revenue-neutral figuring that might be done.
First of all, the city of Mississauga is always concerned about regulations. We like everything in the legislation, and then we know where we're going. When it comes to passing the legislation and the regulations, we get some shocks when the regulations come down. Legislation without regulations being right up front is very dangerous. I give you development levies as an example, where we got the legislation and then a short while after that, we found out there was something that would been included in the regulations that would have had serious impact on the success we had with the development levies.
Second, another great belief we have is that democracy, we hope, is still alive in the province of Ontario. We're absolutely amazed that the legislation leaves in -- I thought we were going through a process of disentanglement, but when you read this page, "Provincial/Municipal Roles and Responsibilities," you'll notice it is very heavy on the side of the province and the upper tier making decisions, leaving very little for the area municipalities to make decisions about. There's a perfect example which illustrates our grave concern, that you wonder whether it's worth running for office at the local level because of all this.
In the region of Peel, we strongly oppose the upper tier setting the tax rates. I always felt I was elected to tax the people. I've always felt that for the 30 years I've been in politics, but I'm discovering that really I'm not. In the region of Peel, the city of Mississauga does not have the majority of votes -- we only have 49% -- but we pick up 70% of the bill of the operation of the region of Peel. We are strongly objecting to that. If in other regions they are prepared to do that, that's entirely up to them, but in the region of Peel we are not at all happy. We've registered that seriously with our MPPs. It is, in my opinion, not accountability that I think we all should have as elected people. It would be like the province of Quebec setting the sales tax for the province of Ontario.
It says delegation can occur at the regional level. That's interesting, but when you don't have a majority of the vote, how can you get it? I'm sure the elected people from Brampton and Caledon would be having a ball setting the tax rates on my massive industrial-commercial assessment, because they don't have as much as we have. Caledon has very little. On every major issue at the region of Peel, we are outvoted. They get the courthouse, they get the police station, and we get the Britannia landfill site in Mississauga. So we've got past history to prove it doesn't work, and it's not democratic; it's definitely against democracy.
Farm land awaiting development is another very serious issue. We have some very large farmers in Mississauga. They're called developers. They don't do much farming except that they try to hire people to go out and farm to try to beat the tax situation. Bill 149 -- it hasn't been decided yet how it's going to be done, but they've come up with three classifications of farm land. The land receiving beneficial farm assessment need not be used in compliance with the municipal zoning bylaws, so what the province is saying is: "Your land is contrary to the zoning bylaw, but don't worry. You don't have to pay the taxes based on the zoning bylaw" -- in other words, providing benefit to those acting contrary to municipal law. That's very evident.
The criteria for the third building subclass should be changed. They've come up with three classes of farm land to meeting prerequisites for a building permit, as land immediately ready for development. They could get ready for development, not apply for their building permit, and sit with it for years, enjoying the benefit of the classification. As you know, developers only develop when the market is there. They're smart, smarter, often, than government is. They would just sit with the land fully ready for permit.
Lower-tier municipalities should set the percentage reductions of tax rates for the subclasses that the province has created. Currently the upper tier is to set it, with no provision for delegation in this case. On the setting of the tax rates, they say it can be delegated, but only if you have control of the vote.
Then it comes to vacant land. Properties and farm land awaiting development may receive less favourable tax treatment than vacant land. Percentage reductions for farm land awaiting development subclasses should be brought in line with other subclass reductions. I wonder at times if those who prepare these recommendations really understand the process that we in the municipalities go through.
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Payment in lieu of taxes: The minister has the authority to set payments in lieu of taxes. As you know, we have the Mississauga international airport in our city and we have a very large Canada Post operation. Over the years, we have had grants in lieu, and we wonder at times whether all these buildings should not be assessed according to the assessment. At the present time we collect $12 million from the airport. We don't know how the minister is going to cause us to share the grants in lieu, with whom, when and how much. As you know, they're assuming 50% of the education, and we don't if they're going to say, "We'd like part of your grants in lieu for education." We don't share it with education now. We don't share it with the region. It remains with the city. Is there going to be any consistency of application, and where is the dispute resolution mechanism if we don't agree? There will be ongoing uncertainty, and is it going to change from year to year by regulation?
There's one thing the municipalities in this country have done well. They've managed their affairs much better than either the federal or provincial government have. But the things that are coming down the pike are leaving us in a complete state of confusion. We don't know where we're going. I tell my taxpayers, "I have no idea what your tax rate is going to be in 1998." There are some people who will promise a tax freeze when they haven't the slightest idea what is coming down the pike, but it sounds good, and you can make those statements in the hope of getting elected. Then, when you're elected and you send the tax bill out: "Oh, well, I didn't know. I'm only one member." I've got nine members of council. I guess I could make the statement and say: "The other eight members voted against me, so it's not my fault. I promised you a tax freeze, but I haven't got a hope of implementing it."
Interim financing: Has the province figured out how we're going to interim finance the municipality? I'm sure they must have hired some very capable accounting firm to tell us we're going to interim finance, because we don't know.
Bill 149 should be amended to include the alternative of 50% of the rate structure that would have been levied in the preceding year. That's the way we do it now, but somebody came up with some weird idea that we're going to change it this year. Quite honestly, at a meeting of the GTA mayors and regional chairs and the large urban mayors in the province on Friday -- there's something happening that bothers me considerably as a politician who has served the people for 30 years. The suggestion is that because of the confusion and the mess municipalities are in because of the unrealistic legislation -- we can't strike. I wish we could, like the teachers, and could really bring pressure to bear. I don't know how we as mayors or how municipalities can strike. It seems the only way things can be changed. When you hear mayors sit around the table and say: "The only way to deal with this is that we'll collect the money for the province, we'll take care of our regular needs, and we'll send whatever is left over to the province in 1998" -- unfortunate, isn't it, that we would even have such a suggestion come forward?
There have to be changes to Bill 149, and we want to know what the regulations are. We won't know where we're going until we know the regulations. I don't know, folks. Today is October 21, 1997, and all this is going to come into effect January 1, 1998. In the past, we have had our budgets set now for the next year. We don't this year, and we can't set them.
Let me read to you the final figures we were promised on October 6, the frontispiece that was attached to the figures that came out on October 6. Mr Leach said, "That's it." Mr Gilchrist said: "That's it, folks, you'll have everything. It will be revenue-neutral, and you won't have to increase your taxes."
"All figures are estimates based on minister's most up-to-date information. Municipalities will be given further data as it is developed. Transfer responsibilities and related changes may require the approval of the Legislature where applicable."
If anybody calls that final, they've got to be on cloud nine. That's the problem we're up against. I don't know how we can get the message across to the government that we're in a mess in the municipalities of this province, and find a mayor, other than one, who will tell you that we know where we're going. Find a mayor.
The minister is quite capable of quoting in the Legislature that a candidate running in Ottawa-Carleton says they're going to have no increase in taxes. Running to get elected. Sounds great. Another one says they're going to freeze the taxes.
We don't even know how the downloading and the pooling in the GTA is going to affect us, because there are no final figures on it. In the 30 years I've been in local government I have never been so confused and so frustrated. Going into an election on November 10: There are no issues out there, because nobody knows what's going on. Ladies and gentlemen, I say to you that it's time this mess got sorted out.
I don't know what the purpose of this standing committee is, quite honestly. I hope somebody will take this issue seriously and give us the tools to do the job. There's no such thing as disentanglement; it is entanglement, and that page proves it. It proves it right there. The minister can decide this, sets the band for the variable mill rates. The unfortunate part is that he hasn't made the decisions. Ladies and gentlemen, it is a sad day for local government in Ontario.
The Chair: Thank you, Mayor McCallion. We have approximately 15 minutes left. If you'll take questions, I'll start with the government party, approximately five minutes each.
Mr Grimmett: Thank you for your presentation, your worship. I wonder if you could perhaps help me with the farm lands pending development issue. We have heard from people who you might say are from the development community -- some of them are and some of them perhaps aren't -- who are in a position where they have lands that would be treated by this legislation as pending development. Those people are telling us that this legislation is too harsh on them, that it does not allow them to develop the property significantly enough before they're hit with the higher level of tax that's imposed from being rezoned or being in a different type of zone. How would we try to deal with the two competing forces? On the one hand, people such as yourself are saying we're bringing the conversion to a different assessment at too late a stage, and then the development community is telling us that we're bringing it at too early a stage. Can you propose a compromise we might be able to work with?
Mrs McCallion: Jeff, do you want to answer?
Mr Jeff Jackson: Our understanding of the legislation is that it allows the upper-tier council to set the rate anywhere between a 0% benefit up to a 75% benefit. The way I read that is that a 75% benefit would be equivalent to what a bona fide farmer would be entitled to. I really can't see much difference in terms of your first stage.
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I think the task force looked at the issue last year, and they felt that once the subdivision approval was in place then it should merit a different banding. I think that's what the committee has done.
Really our concern was just in terms of the third stage. We felt that once it reached the building-permit stage it shouldn't have to wait for an actual permit to be issued. Our general sense was that the land at that point in time was worth more money and the benefit conferred on the developer should be that much less.
Mr Grimmett: Just to clarify your point, you're comfortable with the first two proposed stages.
Mr Jackson: Yes, I think so. It's the third one that we have some difficulty with.
Mr Grimmett: I see. What is your proposal on that one?
Mr Jackson: It is basically that it would be at the point where all the things are in place in a given municipality so that a permit can be issued; it's just that the developer hasn't said: "I want to build. Now give me some permits."
Mr Grimmett: Would that continue to have three stages, then, or would that be effectively reducing it to two?
Mr Jackson: No. Because there's a difference between being at the plan-of-subdivision stage and being at the stage for a building permit, you still need the three stages.
Mr Grimmett: The issue you raised about upper-tier powers, your worship, are you the only regional municipality that's in this situation where one area municipality is so dominant but does not have the number of seats on the region that represent its population?
Mrs McCallion: I believe so. The region of Durham would be the only other one, in which Oshawa would be in the same situation. They have the bulk of the industrial and commercial assessment but do not have a majority vote.
Mr Grimmett: But I understand you are pursuing that governance issue in another forum, is that correct?
Mrs McCallion: Pardon?
Mr Grimmett: Are you pursuing that governance issue in another forum? It's not really a Bill 149 issue.
Mrs McCallion: Yes, it is, as we understand it.
Mr Grimmett: Are you pursuing it in another forum?
Mrs McCallion: We are pursuing it with our MPPs. We've asked them to find a solution to it. I believe they are working on it.
On the farm assessment, I'd like to go back to your question. The minister, in my opinion, sought the advice of the city of Mississauga on the farm issue. We tried to be fair. Our staff was very much involved; Jeff and my assessment commissioner and Mr Munden. The city manager came down and spent hours with the staff in the revenue department to give them a thorough understanding of the farm situation, because we are seriously affected and so is Oakville and other areas in the GTA.
We're willing to work with the government to give them the understanding they need. They learned an awful lot, through the development levy process, that the provincial staff didn't understand. Again, we've spent months. We've had most of our staff this year working on bills and all this stuff instead of doing what we should be doing -- well, we are doing it, because we've got all kinds of development in Mississauga this year. We're very fortunate.
Mr Grimmett: We certainly appreciate your coming in and sharing your thoughts with us. That's really what the committee process is for.
Mrs McCallion: But I ask you folks: Let's get some answers. I had the vice-presidents of the Bay, Dylex and Oshawa Wholesale in to see me three weeks ago saying, "What do you think the tax bill is going to look like in 1998?" I said, "I haven't the slightest idea." They said, "Well, Madam Mayor, we have to plan our budget for 1998 based on what type of a tax bill we're going to get." "Good luck," I said, "We're in the same boat, folks; we don't know either." What a state of affairs to be in. It's a terrible state of affairs.
Mr Phillips: I have an observation and then a question. I appreciate your comments, Mayor. I think we all recognize you're the dean of the mayors of Ontario, so we value your input.
I think the government is doing it deliberately. I think they know what the impact will be; they know there will be an uprising if people found out. This is a well-planned strategy to simply let it happen. In April you'll be forced to send out your tax bills, and then people will know what the impact is. I don't think there's any question at all that that's the plan of the government. They've refused to give us any impact studies at all, and we are helpless to force them to. In fact, we passed a resolution in the House asking them to release the studies, and they refused to. I think it's a deliberate move to avoid people storming Queen's Park. It's a tactic of hide it until the end and then, frankly, hope they can blame you, because there will be the downloading at the same time, there will be reassessment at the same time, and the taxpayer will not know who to turn to.
My question is to give us some help on various issues in here. Regarding the elimination of the business occupancy tax, every municipality we have talked to has said, "We are going to put it back on to our commercial and industrial realty tax." As a matter of fact, I think the bill requires you to put the business occupancy tax on your interim tax bill. There is a belief by most -- I think all -- that the elimination of the business occupancy tax, putting it on realty tax, will likely hurt small business. So there is a proposal in the bill to have different bands available for municipalities to tax at different rates based on the assessed value of the property. In other words, if it's assessed at, hypothetically, $500,000, you can give a lower tax rate; then from $500,000 to $2 million, a different tax rate; and above $2 million, another tax rate. My observation is that that's not necessarily a reduced tax for small business; it's a reduced tax for owners of small property.
Has your council looked at the issue of the elimination of the business occupancy tax and then the proposal by the government to have these three bands of taxes available based on the value of the property? Is that something you're supportive of or have concerns about?
Mrs McCallion: Jeff, do you want to comment on this? We've turned all this over to the staff to try to figure out to advise us.
Mr Phillips: I appreciate that. I can understand why.
Mr Jackson: We were actually quite astounded when we looked at the legislation, because, going back to the original bill, we were under the understanding that the province wanted to give us the ability to set taxes and to determine who in our municipality we wanted the tax burden to rest upon. Yet when you read all the legislation, as you point out, Mr Phillips, it would appear that we're forcing the business occupancy tax to be rolled back on to the commercial and industrial taxpayer. That may be a good thing and that may be a bad thing; I don't know. I think our council at this point in time hasn't dealt with the issue yet, because we wanted to see the impact on specific taxpayers before we could make a decision as to whether it was good or bad to do this.
I think you also have to look at given municipalities and say, "Are we competitive with other municipalities?" Until you start looking at the competitive aspect, it's very difficult for anybody to say, "We want to tax them" or "We don't." I don't think it's any different in your world, where you have corporate income tax and you look at Michigan or New York state and say, "How are we relative to them?" We do exactly the same thing in municipalities. I think that's probably the best answer I can give you.
Mr Phillips: Fine. The major tax issue is not in Bill 149, it's in Bill 160, and that is the authority for the Minister of Finance to set, by minister's regulation, the property tax on education. For you, that will be probably 53% or 54% of your business property tax and probably 26% or 27% of your residential property tax, by regulation. If you've read the bill, the minister has almost unfettered authority to set it within municipalities, within parts of municipalities, by subclass etc. Also there will be a single residential property tax rate on single-family and multiple residences for the education portion, which I believe shifts, province-wide, about $300 million of property tax off apartments on to single-family residences. That may be what the government wants.
Has the council any advice for us on that? I realize it's in Bill 160, but this committee is trying to wrap up the property tax issue. I know that many councils have objected to school boards setting the mill rate, but at least that was done in public, and at least if you had an objection you could at least show up there. This is going to be done in the cabinet room, and you won't know what it is until the Gazette comes out on a Saturday and you say, "Oh, they set the property tax." A third of Mississauga's property tax will be set down the hall in the cabinet room. Has the council debated that at all and got any advice for us?
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Mrs McCallion: No. We're confused.
Mr Jackson: Could I just ask a question to answer a question? We're really unclear in terms of how Bill 149 relates to Bill 160. When the province sets its single tax rate, do any of these exemptions that we spoke to earlier, like property waiting to be built up on or any of the vacant property, does that apply to the single education tax rate? We don't know.
Mr Pouliot: Your worship, gentlemen, I'm at a bit of a loss. I know about your success story -- it's nothing short of that -- in Mississauga over the years by way of good promotion and some timely increased assessment. I know of your ability, Mayor, to live within your means. With you, it goes beyond the written word. It's something you have practised very, very successfully.
I never thought the day would come where, two months before the largest exercise in devolution -- well, dumping, if you wish -- transfer of new responsibilities to the municipalities, I would -- and correct me if I'm wrong, but you're anxious because you don't know. It's two months, and the clock is ticking. This is a massive endeavour, and you have to convey the good news to people you represent, and you sense that the devil might be in the regulations, that these people will dim the lights and scare one another, but more importantly scare us all, by saying, "This is the regulation." They'll dig into their bag of snakes, nothing short of that. I used to think otherwise, but I don't any more.
It's two months before you have to start notifying, because the flow must come in, you must pay your employees, you must supply those services, and you will have only the interim tax levies, last year's figure, inclusive of the BOT, to go on. You will have your assessment figures coming in some time, no sooner than April. You have a different fiscal year. We're already four months into the fiscal year.
Then the ministry -- hardworking, well-meaning people -- estimate, and these are the government's figures, 500,000 appeals across the province. Can you imagine how long it will take just to address them? It will take 18 months. As your year gets condensed -- and their fiscal year here starts on April 1 -- the final tax levy will include downloading, the cost of which you still don't quite know. Do you know which funds you have access to and what formula or criteria will make up for the shortfalls? We're used to bills; there's still hope. Yet bill after bill now -- because nothing works in isolation here. The revolution marches on. This is all about making the trains run on time. Let's make no mistake about that.
People don't know two months before. What a mess we're in. I just came back from the north, your worship, and they've got these packages, all the services. They don't know if it's upper-tier, if it's their own; all they know is that the time will come when they have to pay. The minister and this lot here are saying, "Don't worry, be happy." How will you address something you don't know in a period of only two months?
Mrs McCallion: We can't address it. In fact, I spoke to 300 farmers the other night in Halton and, as the Chairman said, they're going around in circles. I spoke to the Association of Ontario Road Superintendents in Hanover Friday night. There were 300 to 400 people there. They're all confused. Nobody knows where we're going. The rural people don't know; nobody knows really where we're going.
This is a pamphlet that's going to be distributed throughout Ontario to municipalities. Hey, Mike, show us the real numbers so we can start budgeting. I think it's sad we're spending taxpayers' money to try to get a message across. Secondly, some of this stuff that's coming out -- this province has always been proud of the fact that municipalities were not allowed to bonus to get industry or commerce. I have been asked many times, "Do you believe in bonusing?" I said, "No way." If you have bonusing, you're not efficient and you're not well managed. I've got to sell my municipality on being well managed, efficiency and creativity, because I can't give an industry moving in any bonusing.
The way that we're going to be mixed up we'll never know. There will be bonusing all over the place and especially in the greater Toronto area, because everybody will be doing things differently, and as a result, it will bring about a bonusing situation that has never existed in this province.
I get companies coming from the United States saying, "Madam Mayor, can you give us a tax break?" I say: "No, I can't give you a tax break at all, we're not allowed, but I'll give you efficiency and good management, and your tax dollar will be spent well. If I bonus you, then I have to bonus the next company moving in, and when does it end?"
Mr Pouliot: It's obvious that there's a degree of incompetence -- let's call it what it is -- acute incompetence. The government is in a rush, and when you're in a rush you get tired and you make mistakes. If you had a message -- and you are positive, your worship, you are experienced -- what would you say, in a few words, to the members of the brigade, I mean the government of the day? What would you tell them in view of what's about to happen?
Mrs McCallion: We gave a message to the government ages ago. I, by the way, want to give credit to this government that finally they have proceeded to sort out the assessment in this province, which no other government had the backbone to do, and I want to say that. The point is that they should have gone ahead with reassessment at current value before they threw us into all this chaos with all these regulations and changes, because there are going to be tax increases in 1998, even in Mississauga where we're at 1980, and there are going to be tax decreases in Mississauga, so anybody who stands on a public platform and says they're either going to freeze the taxes or no tax increase is on cloud nine.
The Chair: Thank you, Mayor McCallion. We went a little bit overtime, but I very much appreciate your coming here. Thank you for your advice and information.
Mrs McCallion: I appreciate the time you have given us. Please make some changes and make them quickly.
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URBAN DEVELOPMENT INSTITUTE
The Chair: Could representatives from the Urban Development Institute please come forward. You have half an hour to use as you wish. If you would like to leave time for questions, I'll divide it evenly among the three parties. Would you please state your name for the record.
Mr Stephen Kaiser: My name is Stephen Kaiser, and I am president of the Urban Development Institute. Our organization, by way of its membership, represents a large portion of the development industry in Ontario.
What I'd like to do on an informal basis, if we could, is walk you through the brief that we have today, and then I'll get into the presentation, if the members would refer to the brief. Inside the cover we have a description of the organization, and I'm sure most of you are aware of the Urban Development Institute.
Under section 1 is a technical paper, so to speak, that deals with the new legislation, Bill 149, and the implication of land awaiting development.
Under section 2 is a brief that we produced in March 1996 titled The Assessment of Farmland in Ontario. I'll describe the situations regarding the brief in a moment, but it's important to note that that brief at the time was endorsed by the Canadian Property Tax Association Inc, the Ontario Federation of Agriculture, the Canadian Institute of Public Real Estate Companies, the Greater Toronto Home Builders' Association and also by the two opposition parties, the Liberals through Lyn McLeod and Mr Gerretsen, and the NDP represented through Marilyn Churley at that time.
Section 3 is some tables and graphs that I can explain to you quickly, and they were put together quickly. We tried to be as accurate as we could. The information was gathered from the regions. You'll see snapshots there of land available through the regions of Durham, Halton, Metro, Peel and York combined with the regions of Hamilton, Waterloo and Niagara. The first page looks at basically residential land that is draft approved in those areas to a combined acreage of over 11,000 acres. The next page looks at residential land that is registered and approved in draft plans, again over the same regions, to a total of over 10,000 acres. The next page looks at industrial land, and I must say that the figures we were able to obtain do not paint as accurate a picture as the other two pages you have seen, but basically in terms of industrial land, both vacant and with designation, across again the same areas, the same regions, there is over 41,000 acres of land involved in what we're discussing today.
We also wanted to give a snapshot of taxes, fees and charges paid at the end of the process, because what we're talking about today is kind of a snapshot, a moment in time, but if you're looking at the linear process of land development, it's important that you're cognizant of those taxes, fees and charges that are paid relatively close to the end of the process and to when the key goes in the door of a new residence, of a new industrial building or a new commercial plaza.
You'll see on the first chart we looked at the town house development in the region of York and found that in terms of the town house development, taxes, fees and charges paid to the municipal sector, combined on a per acre basis -- this is at the end of the process, and they're spelled out -- is over $262,000. The same again dealing on a commercial basis: We looked at a project in Brampton, and that commercial project worked out to a taxation total running somewhere in the area of $59,000 an acre. We did the same over two industrial projects, one in Brampton, the other in Mississauga, and you'll see on the next page that combined taxes again come out somewhere close to $70,000 in both cases.
Section 4 are two recent letters that have gone from our office to the Premier's office, and I'd like to read the last paragraph of the letter of October 2, which says:
"Last week your government released a draft regulation to the Fair Municipal Finance Act (No. 2), Bill 149, that will potentially raise taxes on draft-approved development land over 2500% and the same land, once it is registered, over 4000%. Under the provisions of this regulation, a 100-acre draft-plan-approved industrial subdivision would potentially pay, over a 10-year time frame, in excess of $1 million in additional property taxes."
Since that letter went out and we have had a little more time to look at the figures and analyse them and meet with the Ministry of Finance -- my figures aren't quite correct -- we have now found the increase to be somewhere over 7000%.
At the next tab you'll see some letters of support from the municipal sector, and on the final tab you'll see letters of concern from the development industry across Ontario.
What I'd like to do is just set the stage for you. This is a complicated issue to understand, and certainly I'm at an advantage, having been immersed in it for almost two years now, but I'll take you through a brief history if I could.
The situation arose or became apparent to us in the fall of 1995, and at that time we met with both the Ministry of Finance and the Ministry of Municipal Affairs and Housing and outlined the problem. The problem at that time in Ontario was basically isolated to one regional assessment area, that being the regional assessment area that encompassed Mississauga, Oakville and areas of Halton and Brampton. What was happening there, as a result of a recent OMB ruling that was then appealed to the higher courts and left in place, was land was assessed by the regional assessment commissioner, and as a result of this ruling called the Amoco decision, that land was assessed based on zoning as opposed to use. What we saw was that lands that continued to be farm, that were moving through the process, had huge tax increases. I believe you'll hear in the next couple of days from some of those people who have land in Mississauga, and I'll leave it to them to more relate the actualities of what happened on the ground there.
But it was no doubt a problem, and we sought to find a resolution to the problem. In the spring of 1996 we brought forward the brief that I alluded to under section 2, and the groups that endorsed the brief, including the two opposition parties. At that time we were seeking an amendment to Bill 20, which was the Planning Act and was going through the same stage, the standing committee stage, at that time.
Because Bill 20 was a clause-by-clause revision of Bill 163, we needed three-party consent, and at the last minute, we lost the support of the government and that direction of trying to fix the problem we were facing was lost at that point, and the only alternative was in dealing with it through changes to the Assessment Act.
Since that time, we have been working with the government, meetings in finance. I don't know how many times I have been in the minister's boardroom and met and tried to discuss the situation and help the government to understand the lay of the land and what happens out in the development industry itself, as it is a very complicated industry, as you know.
One month ago we had the revisions to Bill 149 released -- that deal specifically with this section -- and at that point in time, an issue that was localized to the area of Mississauga, Oakville, Halton became an issue for the industry across the province. I can tell you from answering the phone and the letters coming into our office that the industry is waking up. Again, this only happened about a month ago. There is a huge concern out there from the industry and from the municipal sector with regard to the direction of the government.
At this time I'm not going to read every letter we have, but I think it's important to set the stage so that some of these people who couldn't make it to committee are on record in terms of pieces or parts of what they had to say in their letters, and that's what I intend to do now.
John Cole, the mayor of the town of Newmarket, in a letter to the Honourable Al Leach dated September 17 wrote:
"To attract new business and industry to our municipality, we require a good inventory of developable lands. Developers have relied on agricultural provisions in existing legislation to keep their land investments affordable and feasible in the face of lengthy development approval processes. As it stands, vacant lands are being taxed at rates nearing $10,000 per acre. This represents an untenable financial burden on developers. They will either lose or be driven away from their investments and in turn, future growth and industry for Newmarket will be lost. Larger developers who are able to cope with the new rates on their existing lands will be discouraged from bringing new lands forward. In fact, Newmarket's industrial land inventory is already dangerously low.... I would respectfully request your intervention to ensure that any assessment changes contemplated...do not put Newmarket's future economic health in jeopardy."
Bill Bell, mayor of the town of Richmond Hill, in a letter to Al Palladini dated October 14, stated:
"It is one thing to eliminate some of the inequities in the current system, but it is quite another to kill growth and development in the supposed name of equity by overburdening owners with taxes. I fear that this is the course your government, perhaps unwittingly, is embarking upon.... We are prepared to wait to derive our tax revenues from actual construction and buildings. I think that our position is wholly consistent with the government's stated goal of stimulating economic development and fostering the climate for job growth. The proposed changes, in my opinion, are anything but."
I had a quote here from Mayor Robertson, but I understand he is appearing before you tomorrow and I'll leave that.
Maurice Beaudry, manager of St Thomas Economic Development Corp, in a letter to the Urban Development Institute dated October 14, and I think this is unique because the city of St Thomas is actually the industrial developer by way of an arm's-length company in St Thomas and has been for some time, and it's important that these facts get on the table:
"One of the main successes for the city of St Thomas to attract industries is by 'land banking.' This practice has gone on since the 1950s. We service or semi-service some of the land. In the meantime, this allows us to be ready on demand for a new industrial client.
"By servicing in part or all in advance, it makes it possible to sell the land at very reasonable prices in the current market when in fact the services were put in some 10 to 15 years earlier at a much lower dollar value. This advantage that we have may be mitigated if we had to pay property tax on the developed or semi-developed land zoned for industrial use, but continues to be used for agriculture.... I trust you'll be successful in convincing the government that no matter who owns the land, so long as it is used agricultural purposes it will continue to have farm assessment."
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Don Cousens, mayor of the town of Markham, in a letter to the Honourable Al Leach dated October 9, 1997, wrote:
"The goal of our municipality remains orderly development. Bill 149 will distort the planning process. It is shortsighted to overtax today and face unwanted consequences tomorrow.
"Much of this new tax will be uncollectable and will need to be written off in subsequent years, compounding our budgeting difficulties.
"Smaller land owners will not be capable of absorbing these new rates. Existing industries will abandon their expansion plans and simply leave town when they outgrow their current facilities. The price of undeveloped school sites within a developer's inventory will rise accordingly, as will land being serviced for residential uses. All of these costs will eventually be passed on to our residents through higher-priced housing."
Lorna Jackson, mayor of the city of Vaughan, in a letter to the Honourable Al Leach dated October 10, wrote:
"As you are aware, the planning and development process takes place over several years. Significant amounts of farmland have been acquired for the purposes of long-term planning and future development under the assumption that the current approach to the assessment of farmlands awaiting development would not change, that is, the land would continue to be assessed as farm land as long as it continues to be farmed.
"Vaughan has a concern that inventories of serviced lands and the planning process may be adversely affected under the proposed legislation."
Roger Greenberg, president of Minto Developments in Ottawa, in a letter to the Honourable Ernie Eves dated October 16, stated:
"As you might suspect, we are gravely concerned with the government's initiatives contained in Bill 149 (Part 2) and the regulations thereunder of allowing the taxation of draft-approved, final-approved and building-permit-issued land, through delegation to municipalities within certain ranges on the basis of a percentage of its ultimate value as developed land prior to any sales taking place. This amounts to an annual capital gains tax and a doubling up of provincial capital tax on developers who are supplying Ontario's housing needs and industrial lands before they've received any revenues to pay those taxes in the form of sales of homes to families or sites to industry. These numbers can be quite punitive. Developers with existing holdings can't avoid these increased taxes and cannot pass them through. This would have a significantly detrimental effect on not only the development industry, but indeed on the economy of the province."
There's a letter of support for our position from Mark Basciano, president of the Niagara Home Builders' Association. I'll skip through some of these.
Dale Taras, regional vice-president, central and western Canada, Imperial Life Financial, in a letter to Premier Harris dated October 16 noted that: "Adding onerous taxes on land is detrimental to creating jobs and only creates a delay in the production of new serviced land, which translates into added costs for home owners and business in general."
I think the point is made. There are a couple other letters that I'd like to get on the record. One is from John Latimer, president of Monarch Development Corp, a letter to Premier Harris dated October 9, 1997, and he ends the letter by saying: "We respectfully request that you keep the current system of taxation on land for development as is. If it ain't broke, don't fix it." That's a company that does business throughout North America.
Finally, I'll leave with one letter that we received today, faxed to our office, and it's addressed to the Honourable Ernie Eves. It's from the Economic Development Council of Ontario Inc. I'll read the letter in whole and I'll leave a copy of this letter with you. I just received it now:
"I am writing you regarding your government's plans to introduce legislation known as the Fair Municipal Finance Act (No. 2), or Bill 149. The Economic Development Council of Ontario wishes to convey our concerns with respect to this proposed legislation.
"EDCO feels that the proposed act is regressive and does not convey the message that Ontario is open and ready to do business. The development community will cease to bring lands into development due to the fact that the taxable assessment will be an unnecessary burden on the cost of conducting business.
"The Ontario economy relies heavily on the success of the development industry to bring new housing and commercial/industrial properties on stream to create wealth and employment. This proposed legislation will discourage developers from making investments in creating new lands for development, a situation which is not healthy for all Ontarians.
"EDCO respectfully requests that you intervene immediately to bring forth amendment to this legislation so that these assessment changes do not negatively affect the future economic prosperity of the province of Ontario."
It's signed by Greg Borduas, who's the president of EDCO this year.
I was hoping there would be time for questions and comments, so I will not read any more letters into the record. I would welcome any questions in regard to my presentation.
The Chair: Thank you very much. We have approximately four minutes per caucus, staring with the NDP caucus.
Mr Pouliot: What a testimony. Wow. I was going to ask you to stop the torture. This is a litany of lament, a litany of competitive sameness. It spares no one. I see that Mr Cousens -- it's almost as if the government is eating their young. This is terrible.
If I were to post a sign after listening to what you said, it may be "Ontario is closed for business." A cynic would ask, "How do you like your Ontario now?" Because of your testimony bringing forward the collective concern of all those people -- to be somewhat fair, I don't think the government intends that. This is contrary to the manifesto, the mantra. It is intended that developers would be helped. Friends are people you treat a little better, not a little worse. You don't take them for granted. I prefer to see this as an oversight. Your timing could not have been better; there is still time.
It's evident that you see this as a deterrent to development. People will say, as the facilities become dated, as options are to be contemplated: "I cannot afford it. Maybe it's better elsewhere." Your point is well taken. I know this will penetrate, in terms of the minister and the parliamentary assistant, and they will make the necessary amendment to Bill 149, unfortunately yet another example of the sloppy work that people who are in a hurry do. That train must leave the station on time, no matter what, and people are left picking up the wreckage.
Thank you for your presentation. I think you've scored a major point, and I for one would be surprised if the government did not change what you've addressed.
Mr Grimmett: I couldn't help thinking, as I sat here in the committee, how interesting it was to have your presentation, Mr Kaiser, juxtaposed back to back with that of Mayor Hazel McCallion. Did you get the opportunity to sit in on her presentation, sir?
Mr Kaiser: I did. It will probably become more interesting when you hear Mayor Robertson's presentation, who's mayor of a municipality adjoining Mississauga which put forward a bylaw to try to circumvent and ease the problems for the industry, and Mississauga came and appealed Brampton's bylaw.
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Mr Grimmett: It certainly is interesting to see the varying views on the issue of how a municipality can deal with development in its various stages. I think today we've heard two quite different views on how to deal with that.
My challenge to you would be that when you look at Bill 149, you can see that the government is trying to grapple with the issue of, at what stage does the assessment process kick in when property is in the development process? Especially those members who come from rural areas of the province hear all the time from our constituents, "What are you doing as a government to preserve farm land?" as an example. That is another element that comes into this whole discussion.
You're here today and it's your opportunity to give us your advice. I would like to hear your advice on how we should deal with the competing interests, as stated by Mayor McCallion, who has said that from her perspective, she feels that when farm land is approaching development, the assessment process should kick in right at the time of zoning. In your brief, you indicate it should happen at the time of registration of the plan. What we as a government have to do is be fair; we have to recognize the competing interests. I'd ask you to comment on that and perhaps indicate if there's some middle ground.
Mr Kaiser: I would suggest that you go back to the Common Sense Revolution and the platform this government was elected on and reflect on the 216,000 new private sector jobs created in the province in the first seven months and rationalize that probably one third or better of those jobs come from this industry, directly or indirectly. Understand that this government is promoting Ontario as a place to do business, that you've cut taxes over 30 times, supposedly, in the mandate of this government.
I think you have to step back, look at this industry as a whole and ask one question: Is the industry as a whole, from start to finish, paying its fair share of tax, or is the industry not paying its fair share of tax and should we increase taxes to the development industry? You have to fundamentally answer that question. If the answer is that we are paying our fair share of tax -- if not overtaxed -- then you put forward a taxation policy that does not put a tax increase on this industry, that does not change the way developers from Windsor to Ottawa do business and bring land on stream.
I can tell you, from my phone ringing, from meetings I've been in, from the time of this bill being introduced to these changes a month ago to now, that literally hundreds of acres are being stopped in process due to the taxation implications of this bill -- not out of protest, but out of concern that from the time you bring lands on stream to draft plan approval until you turn a key and someone walks into that new residence, business or industry, the development industry will not be able to survive in the course of A to B. That's the question.
Mr Phillips: I appreciate the presentation. I'm just trying to get a handle on the practical implications of this. On the one hand, I think the bill is designed to extract substantial extra revenue for municipalities from land approaching development, and as soon as the clock starts running, tax escalation occurs very quickly. If you're delayed at all, if an economic downturn occurs halfway through the process, you're probably dead in the water on development. You could be at the approved plan of subdivision stage, but you won't go ahead with actually building either the residences or the industry, because the economy has downturned but your property taxes are quite significant, I gather.
Some municipalities, certainly Mississauga, are feeling they've got costs they want to cover; the province is dumping costs on to them, and how are they going to handle it? Your industry is caught in what looks like a huge problem, particularly if you think you're going to go but you pause. You're dead, because the tax escalation will drive the costs up and probably bankrupt some.
What I hear you saying is that your industry is now saying the best thing they can do is just hold it as farm land and don't register plans, don't get approval of subdivision plans, because if this bill goes through, taxes begin to escalate very quickly. Is that what your members are saying to you?
Mr Kaiser: If these provisions stick, certainly the industry will conduct business in a radically different way than it did before. We mentioned Bill 20, the planning act, which supposedly opens the door, promotes the industry and the municipal sector to bring lands on stream that are designated and ready to go. This will first be punitive to those people who happen to be stuck in process, and in future will cause developers to bring land on stream in a very fragmented way.
As I said, I sat with a group that was going to draft-plan-approve 400 acres in the city of Vaughan last week. We sat in on their development meeting. They were literally discussing: "What are we going to do? What are the implications?" It makes good, prudent planning sense to actually draft-plan-approve that 400-acre piece, which is under multiple ownership, at the same time. Having said that, the piece that is to the north quadrant, for example, in terms of it being actually utilized and built upon, is much slower than the south quadrant of the 400-acre development, and it will take some time.
We have through these changes a trigger for a higher level of taxation at draft plan approval, and then at registration we have another one. Tomorrow you meet Phil King, a gentleman from Orlando, and he'll bring out the concern a company like theirs has, as an industrial developer that brings large segments of land at one time. Those lands would be sitting there with no money coming in and a huge tax burden on those lands. They sit there basically as an asset to the municipality, because it's the municipality that is out there, through their development people, trying to entice businesses to come and locate and build on that land.
The Chair: The time has expired. Thank you very much for presenting today.
Mr Kaiser: If there are any other questions, please feel free to contact my office.
1440
ST LAWRENCE AND HUDSON RAILWAY
CANADIAN PACIFIC RAILWAY
The Chair: Will representatives of the St Lawrence and Hudson Railway please come forward, Randy Marsh, manager of government and public affairs.
Mr Randy Marsh: Thank you very much. My name is Randy Marsh, and I am the manager of government and public affairs for the St Lawrence and Hudson Railway Co. I appear before you today representing both the St Lawrence and Hudson and its parent corporation, the Canadian Pacific Railway Co. I would like to thank the standing committee for this opportunity to comment on Bill 149 today.
You are no doubt aware that great changes are taking place with railways in Canada. One significant change was the recent relocation of the headquarters for CP Rail -- now once again called the Canadian Pacific Railway Co -- from Montreal to Calgary. This change was brought about because of business imperatives. One significant component of this change was a recognition that a majority of the CPR's major customer partners are, to a great extent, located in western Canada.
Eastern Canada has posed a very difficult business challenge for railways for more than the last decade. The formation of the St Lawrence and Hudson Railway, a wholly owned subsidiary of the CPR, was very much a tangible reaction to this reality. Although we have made some strides of late in our eastern operations, we have a long way to go to ensure that we are able to sustain reinvestment in our operations in order to provide the modern, competitive transportation services that our customers expect and the Ontario economy requires.
For your information, the St Lawrence and Hudson operates on those Canadian lines formerly part of the CPR system essentially east and south of Woodbridge and Smiths Falls, in addition to the operations of the Delaware and Hudson Railway in the US northeast, reaching into the states of New York and Pennsylvania, and the southwestern Ontario gateway through Windsor-Detroit on through to Chicago. The CPR continues to operate within Ontario along its North Shore Ontario route, running from the west through Sudbury, and south, connecting to the St Lawrence and Hudson system at Woodbridge.
In Ontario, St Lawrence and Hudson operates on 2,295 kilometres of main line track and 996 kilometres of sidings and yard track, whereas the CPR operates on 3,310 kilometres of main line track and 668 kilometres of sidings and yard track. In support of its main line operations, the railway must also provide for ancillary infrastructure such as yards, maintenance shops for the repair of cars and locomotives, and administrative facilities. In Ontario, approximately 30 track-intensive yards are employed as vital components of the St Lawrence and Hudson/CPR transportation service.
Together, St Lawrence and Hudson and CPR employ approximately 4,500 men and women in Ontario, with a total annual payroll of over $240 million. St Lawrence and Hudson and CPR's total expenditure in Ontario in 1996, through employment, purchases, capital spending and taxes, was in excess of $830 million. In a more detailed fashion, appendix A to this submission summarizes the St Lawrence and Hudson and CPR's Ontario presence.
The vital role of the St Lawrence and Hudson and CPR in the Ontario economy consists not only of the railways' direct expenditures but also of the indirect contribution through business relationships with Ontario-based suppliers. The economic wellbeing of these suppliers is closely tied to the health and viability of the railways. They provide a diversity of goods and services to the railways ranging from petroleum products to rail cars to communications services. Appendix B to this submission sets out the top suppliers of goods and services in 1996, which amounted to $442.9 million in total purchases.
The St Lawrence and Hudson and CPR's economic presence and investment in Ontario have a large multiplier effect on the provincial economy by improving the international competitiveness of Ontario; by maintaining employment in businesses and services directly and indirectly related to the rail industry itself; and by helping Ontario municipalities attract new investments by businesses that depend on cost-competitive transportation services. Ontario government policy can dampen the railway's positive effect on the provincial and local economies through which it operates, as we believe it presently does, or it can provide an environment which supports the many jobs, both directly and indirectly, that result from continued railway operation investment.
The operation of a railway is a very capital-intensive endeavour, requiring constant large-sum investment in infrastructure and equipment to allow for continued, effective delivery of services. Unlike utilities, railways cannot merely pass on their higher costs through higher rates. In fact, railways operate within intensely competitive transportation and capital markets.
This business reality has in recent years put tremendous pressure on railways to align their operations consistent with where the profitable business exists. In this context, eastern Canada, including Ontario, has been under intense scrutiny for the last decade or longer. Excess infrastructure and progressive traffic shifts from rail to trucks have left the railways in the east to fight a largely uphill battle for viability. You might be surprised to learn that between 1989 and 1994, the combined losses incurred by the CPR and the CNR, related to operations in eastern Canada, equalled $2 billion. Clearly, this could not be sustained. Changes have taken place.
The Canada Transportation Act, the 1996 legislation which now regulates the activities of federal railway undertakings, acknowledges the need to treat railways as businesses by fostering an environment which improves the railways' ability to earn their cost of capital, which in turn would allow the continual reinvestment in plant and equipment required to sustain effective service. In this regard, the new legislation provided for a more business-focused approach to network rationalization.
The result of this has been the initiation of a process of significant network restructuring by the railways and a corresponding proliferation of smaller, lower-cost shortline railways picking up track with marginal business potential to the major carriers but potentially profitable to the smaller, lower-cost operator.
The government of Ontario has recognized this change and provided the support for an Ontario shortline industry through such actions as the passage of the Shortline Railways Act, 1995. Since this time, smaller operators have entered Ontario to operate lines formerly with the CPR/St Lawrence and Hudson as well as the CNR. This trend is expected to continue for the foreseeable future. Where a line cannot be operated profitably and a shortline operator is unable to step in, line discontinuances will be inevitable.
The CPR's approach to this problem in the east has been to provide a small management group in the east with the mandate to turn the east around or else. The 1996 incorporation of the St Lawrence and Hudson Railway Co, a wholly owned subsidiary to the CPR, headquartered at Montreal under its president, Jacques Coté, allowed for a total focus on the eastern market but also signalled that our owners expected a turnaround. Immediately, a plan was developed to lead the St Lawrence and Hudson to revenue sufficiency. The five-pillar plan included issues within our control, as well as others outside our direct control. The areas within our control are well in hand, including a drastic reduction in our costs, an improvement in our service through a higher customer focus, and a fast-paced network restructuring process. The areas outside our control, including the need for more favourable labour agreements with our unions as well as governmental policy and regulatory reforms, are just as crucial to our success.
Both the St Lawrence and Hudson and the CPR make substantial contributions to the economic life of Ontario and its communities. Both have a strong commitment to the province. For Ontario to remain competitive it continues to need low-cost, viable railways, both for the transportation of commodities to and from North American ports and across the continent, and for the provision of passenger and commuter rail service.
Increasingly, the railways' ability to fulfil this commitment is hampered by provincial and federal government taxation and infrastructure support policies that discourage capital investment in railways. Unfortunately, Ontario government policies contribute substantially to these handicaps. Such policies jeopardize the ability of the St Lawrence and Hudson and CPR to make the infrastructure investments needed to meet the challenges faced by provincial industries in the North American and international marketplace. They also effect the futures of thousands of Ontario employees of the St Lawrence and Hudson, the CPR, and the many local businesses and suppliers from which the railways annually purchase millions of dollars in goods and services in support of active operations.
The ability of the St Lawrence and Hudson and CPR to provide rail service that is competitive with US railroads and the Canadian and US trucking industry is undermined by policies of the federal and provincial governments, including Ontario. For example, based upon 1996 data, the St Lawrence and Hudson and the CPR, together with the Canadian National Railway Co, pay approximately 53% more in fuel, sales, and property taxes than would similarly sized railroads operating in the United States. Further, railway asset depreciation rates are much less favourable than for Canadian railways' major competitors.
Canadian railways pay four cents per litre in fuel tax to the federal government, while US railroads pay under two cents per litre to the US federal government. The level of Ontario fuel tax applied to locomotive diesel fuel is over six times as great as that paid to northern US border states by carriers operating in those US jurisdictions.
Railways finance, build, maintain and police their rights of way and are highly taxed on them, while other transportation modes use publicly funded and publicly owned infrastructure. For example, trucks operate on public highways; lake vessels operate on public waterways, canals and locks. Railways pay significant property taxes on their largely unserviced rights of way; other transportation modes pay no taxes on the publicly serviced rights of way that they utilize.
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Inequitable taxes shift freight traffic from rail on to trucks or on to US railroads. This is in part because lower tax levels result in lower costs for trucks and foreign lines to deliver service to price-sensitive shippers. Less traffic on Canadian rail routes reduces their viability and service levels. The more traffic is shifted to trucks, the more congested and less efficient the highway system becomes.
Provincial policies have enabled truck carriers to price at levels below what they would otherwise be able to do, thus fostering a traffic shift away from rail. In this regard, taxes on locomotive fuel and right-of-way property add to the artificial cost advantage of highway carriers using public highways. Locomotive fuel and property taxes subsidize the highway and its commercial users.
A 1993 study by the Transportation Association of Canada shows 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 total revenues in taxes, almost twice as much. Municipalities collect property taxes from railways, largely to support local services such as maintenance and repair of public roads for motor vehicles, including trucks, one of rail's major competitors. The same can be stated regarding the fuel tax applied to locomotive diesel fuel.
From the public perspective, promoting a shift of traffic from rail to trucks through lopsided taxation policies is inefficient from a number of perspectives. Not only do railways, compared to trucks, represent a more effective method of transporting goods and people from a fuel efficiency and environmental standpoint, they do so through privately funded infrastructure. Taxpayers are therefore able to forgo the increased costs of highway construction and maintenance, not to mention health, safety and road-congestion-related societal costs, which are no doubt very great. Establishing a balanced approach to taxation in the transportation sector would instead promote publicly efficient shipper choice by dampening the modal shift which continues to occur.
Bill 149 provides for the particular handling of railway linear corridors whereby the province proposes to set municipal tax levels for rights of way, applying a per acre geographic rate, indexing same to average tax rate changes. The regional rate system is expected to result in consistent treatment of rights-of-way property, prevent unpredictable and escalating tax increases, and help stabilize the revenue base for municipalities.
It would appear that the proposed system in some respects is a return to the railway tax factor employed up until 1989. As you may know, the railway tax factor was developed in 1979 as a means to stabilize the increasing tax load the railways were faced with through an increasing trend to higher and higher abutting land values. The removal of the railway factor left the railways open to inequitable assessments, resulting in rapidly increasing property tax loads on largely unserviced lands. Appendix C to this submission sets out the 1997 property taxes paid by the CPR and St Lawrence and Hudson in Ontario.
We understand that the new regional rates would be phased in between 1999 and 2006 and would apply to incumbent carriers, but that new carriers entering the market after the bill's passage would face the new rates automatically. We ask that the committee carefully consider the potential negative effect this automatic application to new shortline carriers might result in. Shortline operators are able to succeed only when they are able to keep their costs low. Property taxes of significant magnitude call into question the feasibility and viability of shortline operations.
Bill 149 is a recognition that the removal of the railway tax factor in 1989 was a mistake. To truly remedy the problem the sector faces in this area and thereby help to make Ontario a more competitive trade economy, more commitment is needed from the government at this crucial time. Please consider the following points:
(1) The effect of any uniform rate should not be to shift the tax burden within the industry, but instead it should be a method to implement a correct solution.
(2) The move to a regional-based centralized rate makes sense, in our opinion, but it should be carried further. The new administration process should also provide the railways with a centralized method of tax payment rather than require the railways to each deal with 300 to 400 municipalities.
(3) Most importantly, you cannot consider municipal taxation of railways in isolation. The other half of the property tax equation, that is, education tax, must be considered at the same time if successful reform in this area is to be achieved.
(4) An area of great concern is the effect of the removal of the business occupancy tax and its inclusion in the property tax. Railways have always been exempt from this tax, and to add it now to the off-of-right-of-way properties, which primarily consist of operating lands required to support our rail corridors, could have a dramatic and damaging effect. We estimate a potential increase of up to 45% on our off-of-right-of-way properties, leading to an approximate increase of between $3 million to $4 million dollars in our tax exposure. This certainly could not be what the government intended when it set forth to work out solutions to the problems facing the rail industry. To counteract the potential, unexpected tax increase through the addition of the former business occupancy tax to-off-right-of-way property, including track-intensive yards, accommodation should be made now to ensure this potential increase does not occur, through such actions as the redefinition of "right-of-way" to include yard trackage, by altering the regional rates to balance off the unexpected increase, or a combination of both.
(5) Since the removal of the railway tax factor in 1989, the railways and municipalities have been engaged in many numerous property tax appeals which have arisen as a consequence of municipal reassessments since that time. At last count, up to 30,000 appeals remain outstanding. This fact raises a question as to what will happen to the regional rates once these appeals have been concluded. Implementing the regional rates which would at least correspond to the 1989 tax levels may also assist in the expedited handling of many or most of the outstanding appeals.
(6) Lastly, future taxation policy in northern Ontario's unorganized territories, and levied as provincial land taxes, remains uncertain also. Presently, the CPR occupies 25,000 acres, which is primarily right-of-way, in these unorganized lands. It appears that this issue will not be addressed until perhaps 1999. We fear that these properties are at great risk of massive tax increases should the province not reach a solution to this question soon.
In conclusion, the St Lawrence and Hudson and CPR are privately owned and financed undertakings which, in order to remain competitive, must be cost-effective. Taxation costs represent a very large portion of the total costs incurred by this company in the provision of its services. This company respectfully submits that increasing efforts must be made to continually reduce the level of property taxation applied to railway operations. Action and leadership by the Ontario government in these areas will improve the international competitiveness of Ontario industries and improve railway competitiveness. Modifications to the province's pending new 1998 property tax system are urgently needed in order to ensure that Ontario has a vital and effective railway industry that supports the Ontario economy.
We ask that you seriously consider the issues raised in this submission and recommend changes consistent with it. As time constraints today have limited our ability to address all the issues, we have also appended the St Lawrence and Hudson's submission of September, 1996, to the Who Does What advisory panel regarding taxation of linear property for your further consideration. If helpful, we would be pleased to further discuss our views at your convenience.
The Chair: Thank you very much. There are approximately nine minutes left, so I'll go first to the Liberal caucus.
Mr Phillips: We heard yesterday from two other organizations associated with the issue, both indicating the same concern you have, that currently your property does not have business occupancy tax on it. It's the government's intention, or expectation, that when that is removed from everybody else it will be added on to the realty tax. I gather you're suggesting that your organization would see a $3-million to $4-million tax exposure. Your suggested solution is to potentially redefine "right of way" to include the marshalling yards?
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Mr Marsh: That's correct; or just the regional rates.
Mr Phillips: Or just the regional rates --
Mr Marsh: On the right of way, as a balance.
Mr Phillips: Right. Have you had any response from the government, because I imagine you've talked to the officials as well, on what the intent of the legislation was? Was the expectation that you would be caught in a tax increase on your non-right-of-way property?
Mr Marsh: We've certainly been given the impression, at least, that this issue seems to have been a surprise. Whether or not it was something that was known when the government set forward to change perhaps the approach to rights of way and focused on rights of way and didn't focus on the total tax exposure of the railways, I can't speak to, but it certainly has appeared to us to have been a surprise.
Mr Phillips: You indicate that you can't consider municipal taxation in isolation with the other half of the equation, education tax. I agree with that. Over half of your taxes go to education, 53% or 54% I would think, perhaps more. But that decision looks like it has been made. The government is going to set the rate itself through what's called regulation, and there is it. It will come out on some Saturday in the Gazette, and you and I will both find out about it at the same time. Does your organization have any concern about setting this by regulation?
Mr Marsh: It's hard to comment without knowing the details, but regulation is subject to change. Those changes could be good or bad; it really depends on the numbers.
Mr Pouliot: Thank you for your presentation. Listening and going through your presentation, you fear that what you gain under rights of way you might lose on the property. I'm a little confused because you estimate that there could be an increase of up to 45% on the out-of-right-of-way properties, if you wish. The reason I'm confused is that I heard the Premier not once but on repeated occasions mention that within three years -- he mentioned the year 2000 -- city managers, that's mayors and reeves, should be able to enact anywhere from 5% to 10% savings in municipal taxes. I see some dislocation here. I'm trying to reconcile it. You see, I have to believe somebody sometime in the world I live in. In this case, when it was said the Premier said it with sincerity; he was perspiring sincerity, and I could see the perspiration. I guess if you can fake the truth, you can fake anything. How do you arrive at 45%? Where are your figures? What basis do you operate from? Who told you that?
Mr Marsh: I'm operating on the basis of assumptions and calculations that our property tax manager has provided to me. I believe I have spoken to others who seem to concur that it's within the range; it may be towards the top end of the range of that particular business-occupancy-tax effect. Those numbers aren't at my fingertips. I'd be more than happy to provide those to you, though.
Mr Pouliot: Please. By way of a final supplementary, Chair, briefly, I'm trying to get the tapes, the assessment, the impact study. We don't have this. Unless the assessment figures are in, unless the budget and the final levy are set by the municipalities, unless we have the figures of the devolution, the new services being provided, it is very difficult. We can guesstimate, we can come up with what we call a worst- and a best-case scenario and seek equilibrium and balance in there, but that's not a true database, because you don't have data at your disposition.
The Chair: Would you like to give a brief answer?
Mr Marsh: Yes. We're required to come up with our best estimate based on a prudent business approach to the costs that face us. Our best estimate is based on the assumption of things remaining the same. So despite the fact that things may well change and the municipalities may find their costs and requirements go down, and that may have a positive impact on that, we've been forced to assume that, all else remaining the same, this would be the effect.
Mr Grimmett: Thank you for your carefully reasoned presentation. Yesterday we heard from the CN, so I'll be fair and ask you the same sorts of questions and make the same sorts of comments. First of all, I think it was the association of Canadian railways -- I'm not sure if I have the name right -- that suggested we might look at other railway lands as a way to possibly deal with the issue. Has there been an analysis of this in any significant way by the two major railways?
Mr Marsh: Not in a formal sense. The issue really has come to us fairly recently. Since the information regarding the business-occupancy-tax effect only became very clear when we met with finance staff some time ago and it became obvious to us that there was an impending problem here, that analysis hasn't been carried through, although each company has no doubt done their own estimates of what the potential upside effects would be. Of course, it's hard to estimate or compare that to the effect of the right-of-way rates as we're not formally notified of what those regulatory rates are at this moment. So although we know what regions they are, we can't really compare that to what would be the effect of the right-of-way sections of the provisions.
We are somewhat concerned that there seems to be a difficult issue there as to how to apply a uniform rate to both companies and yet keep both companies in, as it were, a status quo competitive position. Those are issues that are all difficult to work out without having all the numbers before us. That's one of the unfortunate situations we're faced with, that we don't know what the rates are. So it's hard to compare how that scenario may play out. We may have ideas. Certainly finance staff have been interested in knowing what our views in that regard are, so we'll hopefully be working that through in a little bit more detail, but it's very difficult to work that out in detail.
Mr Grimmett: Perhaps you could provide us with a little more information on the properties that you'd identify could be considered for that.
Mr Marsh: Certainly.
The Chair: Thank you very much for coming. We appreciate it very much.
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NORTH HILL DISTRICT HOMEOWNERS' ASSOCIATION
The Chair: Could the representative from the North Hill District Homeowners' Association come forward, please. Could you please identify yourself for the record.
Mr Brian Maguire: My name is Brian Maguire. I'm the director of North Hill District Homeowners' Association. I presume you all have the package I handed out. If you would turn to the pie chart to begin with, this is a question that was part of the transition team's third questionnaire, the third wave, as they call it. It's essentially a question that does not deal with market value in so far as it incorporates a size component. If you read the question, it says, "Some people say this will be unfair in the new city and all should pay the same amount for homes of the same size and value." Essentially, the average person on the street says that a size factor should pay a role in the type of property tax we have. That's reflected in the number of 52% which went along with that combined composition of size and value; 46% agreed to have property taxes stay the way they are.
If you turn then to a letter that I wrote to Mel Lastman following up a public meeting where he made a speech on September 29, I referred to this particular pie-chart question. In the second paragraph, I note: "Even though the average citizen isn't an expert on property tax theory, when asked he or she intuitively feels that a bigger house should have a higher property tax than a smaller house if their value on the open market is the same. Similarly, the citizen would intuitively feel that a more expensive house should have a higher tax than a less expensive one if their size is the same." That's, as I say, exemplified in this questionnaire.
If we turn then to the next piece of material, this is an effort by a gentleman named George Carr, who lives in the Lytton Park area, north of Eglinton in Toronto, where he essentially has come up with a system that he calls the blended-tax ratio, which in fact incorporates both size and value. If you turn to the third page, at the bottom you'll see, in reference to the material, the headline "Blended Ratio Assessment." He uses the gross floor area, in this case 4,500 square feet, and he relates it to the average gross floor area in Metro. Then the ratio of those two is 1.5. In the same way, he relates the value of the individual house, in this case $240,000, to the average resale house price in Metro of $200,000. The ratio of those two is 1.2.
You'll notice that he uses the purchase price. This is similar to what is being used in California under proposition 13, where the idea is essentially that when you purchase a home the price you pay reflects your ability to pay at that moment. Whereas with the market value approach, if it is not updated it can change to the point where you're no longer financially capable of meeting the property tax, the idea being that the combination of those two would be a compromise which would reflect the average citizen's desire to have both a size and value component to the type of property tax.
I'll just briefly mention John Barber's column this morning in the Globe, where he reflects on the disparity of commercial and industrial property taxes. The problem with that is that it's sort of an apples-and-oranges situation, where the comparison with American cities, for example, doesn't reflect the differences between their use of sales, payroll and income taxes to raise revenue. It's the sort of thing that if you feel that C and I properties are fleeing, they do so precipitously because there are other factors beyond just the absolute property tax that enter into how easily they do business, the social factors that surround that particular business. It's not a straight comparison.
The next material is about tax revolts. This was a presentation in September for an annual conference of the International Association of Assessing Officers. This is the major international body for assessing people. These are examples of referendum questions that have been put on the ballots in various states, and I'd call your attention first to the second page, California, where it passed a requirement that there be voter approval of property-related taxes and fees. That follows up on their proposition 13 where the citizen really does have a say in the type of property tax that's levied.
If you turn to page 6 of that material, legislative action in Minnesota, you'll see that they received part of their revenue from the state, in contrast to the desire of Queen's Park to basically shift the burden of property tax solely on to the municipalities, and some of the things that we normally think of in terms of social programs that were funded by the province are thought to be more appropriately dealt with at the municipal level. The problem with that, of course, is that the property tax isn't really a good indication of ability to pay, so one could say that it's not exactly a progressive tax.
When you see Montana there, you'll note that they have just passed -- in fact they did just pass, although it doesn't say it there -- a bill that allows them to phase in increases at no more than 2% per year, and their next re-evaluation won't be until 10 years from now.
Then if we go to the next page, for example, New Mexico -- these are proposed ballot questions -- it would put a limit on value increases, and in the case of Pennsylvania, a local option approach. The next page, Texas, limit on value increases and freezing seniors. In Washington, you have the proposition 13 again.
So there is an acknowledgement in the States that rather than being a top-down decision from the bureaucracy of finance and assessing staff, this be from the ground up, reflecting the wishes of the people.
In that vein, if you turn to the next piece of material, this is a petition that was put together by myself, and I am, incidentally, the secretary-treasurer of the largest umbrella group of resident and ratepayer associations in the city called CORRA, Confederation of Resident and Ratepayer Associations.
If you turn to the second page, at the top it states, "Our association believes that local option should be granted by the province to the city of Toronto for assessment reform, which would give the city the ability to decide which method it would prefer to use."
As is stated on the cover, the actual document with the signatures is in the Clerk's office, because it was read into Hansard by Isabel Bassett. This collection of signatures, all of whom are the presidents of their associations, represents the largest group of major associations in the city and most of the major minor ones as well, so once again there is the contrast between what the citizens would like and what seems to be the agenda of the assessing office.
The next piece of material is the Fraser Institute's report for September 1997. This is not, of course, the complete report, but it is the section that deals with municipal affairs. The first portion of this deals with the megacity issue. On page 39, you'll note that at the middle of paragraph 3 it says: "The Ontario government has confused the desirability of smaller government with the totalitarian ideal of a smaller number of governments. Since the City of Toronto Act is just one move in the Ontario government's agenda to reduce the number of Ontario municipalities from 840 to fewer than 350, a deeper analysis of Bill 103 is of interest to all residents of Ontario."
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Then if we go from that third paragraph to the fifth paragraph, beginning "Local government," you'll note that it says that while it may in fact be inefficient:
"Nevertheless, there is reason to believe that the megacity...will be even more inefficient. While there is a great deal of needless overlap and duplication under the current local government, there is at least some intergovernmental competition among Metro Toronto's six district municipalities. Under the megacity, all governments will be amalgamated into one and intergovernmental competition will be replaced by monopolistic government. If monopolistic firms are considered to be inefficient, then surely the same analysis applies to government."
If you turn to the second page, page 40, it reflects on some material from a Mr Wendell Cox, who has found that there are in fact diseconomies of scale in the megacity of anything over 500,000.
If you then turn to page 41, "The Fairness of User Fees," the idea of the user fee, of course, is to reflect on what you consume. There might be those who would argue that it's a regressive approach, but once again it's a question of what should be handled by the property tax versus what should be handled by an income tax relating to ability to pay.
Finally, if we go to the actual property tax page on 42, once again we get into the fact that Ontario's property taxes are the highest in Canada. The issue of why they're that way, you can reflect on the philosophies of the various governments, but one problem that was mentioned in our submission on Bill 106, and I'll reiterate it, is the fact that at the municipal level, unfortunately, from the standpoint of the average citizen, there is not an arm's-length municipal auditor who essentially stands in the stead of the citizen to monitor where fat in the system exists. One could say that in an efficiently run government, at the service level end of things you should have just enough people to provide the services you need. Then, as you go up the scale, you get into the Peter principle, where people are rising to their level of incompetence, and you get the potential for fat developing in the managerial middle levels. It's at that level, which is a little more difficult to get at, that the auditor would be able to point to inefficiencies that could be rectified. But the point of the Fraser Institute -- which I'm sure you're aware is a conservative think tank -- is that the idea of moving towards a larger municipal government really is at odds with the idea of small local efficiency, and in that vein, you're essentially expecting the arguments that are used by those who say amalgamating seven into one will necessarily lead to cost savings. Maybe they will and maybe they won't. For example, in the case of the fire department, it's really only at the managerial level where potential savings might arise, because if you have a lean and efficient system of service providing at the street level, you have enough firemen to deal with the local concerns and no more.
If we go to the third paragraph at the top of the page, beginning "The Ontario government's rationale," the second sentence there:
"Underlying this statement is the mistaken belief that property taxes should support services other than those directly consumed by the property itself and its residents. A...four-bedroom house imposes no more burden on a city's snow-removal operations than an ugly house of less value. Owners of more valuable houses do not necessarily visit the local park any more than do owners of less valuable properties...."
It also states that a market-based system inhibits renovations.
At the bottom we see mention of the alternatives to AVA: the California purchase price or actual price acquisition, and the UK's council tax which has a system of eight bands and sort of an arbitrary compression of tax rates within those eight bands that is agreed upon by the citizenry. It was brought in in reaction to Margaret Thatcher's poll tax, and the Conservatives found that it was acceptable, as did subsequently the Labour government. They continue on to suggest that unit assessment is the fairest and most efficient of all, where essentially you require a tape measure. With a three-year update using the AVA system, it requires an annual reassessment bureaucracy and 3.8 million assessments to be updated, which of course is quite costly. In the case of UA, you have one-time assessment.
Their proposals are that one should replace the current system of local government, once again, with a single tier of competing local governments; encourage municipalities to charge, wherever possible, for the consumption of municipal services on a user-fee basis; and use the unit assessment system.
In the final paragraph, conclusions, the Fraser Institute says: "[T]he municipal affairs policies pursued by the Ontario government are disappointing. While the encouragement of user fees and downloading of hard services to the local level means superior government accountability and increased control by taxpayers over the taxes they pay, perverse policies in the area of municipal amalgamation and property tax assessment overshadow these favourable initiatives. For these reasons, the government deserves a D for municipal affairs."
The next material is from the Canadian Taxpayer Federation, and this was presented to an annual international gathering at the Sheraton Centre in November 1996. You just have the first two pages and the last two of a 22-page submission. On the second page the Ontario Taxpayers Federation makes the point in the last paragraph that there is going to be $60 million spent on the assessment, and 30% of the properties needed to be assessed, the $130 million it now takes to run the Ontario property tax assessment system and millions more to be spent annually to update it.
We finally go to the second-last page. The analogy is made of the poor order in which this was introduced, because the Canadian Taxpayers Federation believes that you should have had in place the governmental system and known what responsibilities and tax needs were required by them before you even considered rearranging the property tax system.
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On the last page is the solution of the Canadian Taxpayers Federation. AVA will be politically costly. They are suggesting user fees, parcel taxes, since parcel taxes reflect the idea that fire and police, parks and recreation and transportation really do not relate to the value of a property in terms of how much is consumed, so that could more readily be a flat tax rather than part of the property tax; and they feel that unit assessment, just for the reasons previously mentioned, is the system that would be the least expensive.
I'll just mention a submission next that was made on Bill 106 by the OPSEU, who in fact are doing much of the reassessment, in which they say that the schedule is actually ridiculous because of the rapidity and that it's going to result in very questionable assessment numbers which will ultimately be the subject of many appeals.
There is material that's slightly out of order there, but it's two or three units down. It's a building inspection checklist. This is from a textbook called Real Property Assessment, and this is being taught by Seneca College to those who want to qualify as assessors in the AVA course, based on the BC experience. You can see from those three pages that essentially the BC approach, which uses all three pages of this very detailed study, is so truncated in the current approach, which is only using four or five different criteria, that the present approach is going to result in very questionable numbers that will be subject to appeal.
We then move to the alternative systems. For those of you who have been part of the ongoing arguments, most of this will be familiar territory, but I think it is deserving of revisiting. The idea that AVA, which is a very volatile approach, is the only way to go just because the bureaucracy of finance seems to feel that it's the simplest way to move from here to there, I'm not sure that's a sufficient argument to deal with the largest property reassessment in North America. I think that just because it's going to result in such upheaval, it behooves the government to reflect on that upheaval and its impact on both residences and business operations. The arguments both for and against MVA are made there, the disadvantages of MVA, tax volatility -- on page 3 -- uncertainty, high cost, disincentive to improve properties and high rates of appeal if they're not kept up to date.
The unit approach, of course, is very simple. You have the gross floor area already in the provincial and municipal files. On page 4 it mentions the disadvantages. Regressivity, which was mentioned in the Golden report, has been met by the use of lower tax rates for smaller homes, which brings it down to a neutral impact rather than being regressive.
The UK council tax is quite an acceptable tax system for them. It's not a straight MVA; it's agreed that the tax rates are compressed so that the lows are no more than a third of the highs.
In the case of proposition 13, which is based on purchase price, it is an approach that was voted on by the citizenry in a referendum. For those who question the lack of updating, it was challenged in the courts. The Supreme Court held in an 8-1 decision in 1992 that California was justified in having that type of property tax system, regardless of any perception of unfairness. The advantage of it is that it lends more stability; it doesn't penalize those seniors who stay in their home a long time and whose income does not necessarily keep up with a volatile housing market.
On the next page are some impact numbers from 1988, provided by the city of Toronto's economic development division. You can see the change from 1988 to 1996 in the market values. It really exemplifies the volatility of it, where Toronto is substantially going down, in most cases. You can see anomalies, though, among the six municipalities that are not necessarily expected, Scarborough for example. This is just another example of how MVA is a system that produces the unexpected. Because of that, it makes it difficult for both individual homeowners and especially businesses to arrange their financial affairs properly if they can't predict what the real estate market is going to do.
We then turn to the material that was handed out during Bill 106, from Ms Bassett and Mr Leach, in which they specifically and unequivocally said they would not impose MVA.
If you'll turn to the last page, this is a photocopy of the May 2, 1996, Star article, quoting the Premier. He says, "I think it's reasonable, when politicians who campaign in a direction or on a platform for things that are within their control, that they ought to resign or go back to the people if they in fact are going to change their minds."
If you return to Mr Leach's statement, he said, "My party and I will never support the imposition of MVA in Metro Toronto." He subsequently become the Minister of Municipal Affairs; that's within his purview. I'll leave it up to Mr Harris to follow through on that.
The Chair: Thank you very much, Mr Maguire. Your time has effectively expired.
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WINE COUNCIL OF ONTARIO
The Chair: Could Linda Franklin, executive director of the Wine Council of Ontario, please come forward?
Ms Linda Franklin: Thank you very much. I appreciate this opportunity to come and address the committee and to offer a positive, good-news perspective on the legislation on behalf of the Ontario wine industry.
I thought I'd take a second to introduce the wine council to you, for any of you who aren't familiar with us. We are the trade association of wineries in Ontario. We have 32 members that represent about 98% of the wine volume produced in the province of Ontario. We have a very mixed bag of members, everything from very large producers who do well in excess of one million to two million cases of wine a year, to very small producers who do in the hundreds of cases in a given year and are family-run farm businesses, basically, that have grown into wineries over the years.
It's on behalf of those estate wineries, those farm-based wineries, that I'm here today speaking to you about a specific issue of importance to us, namely, the change in the tax treatment that's going to be accorded to the estate wineries under this legislation. Our industry is tremendously supportive of the legislation, because we believe that in the case of wineries and value added farming operations, the changes it puts in place will ensure that the growth we've seen in our industry over the past few years, particularly on the estate winery side, can continue and that grape growers, amateur wine makers and other entrepreneurs who see that growth and want to be part of it will have an opportunity to start a new winery and won't be discouraged by skyrocketing taxes, which would have been the case had nothing been done to change the existing tax assessment structure in the province.
To give you some background, "estate wineries" is a fairly broad designation that's not captured in law anywhere, but generally what we mean by estate wineries are wineries that are based on farm land; they are small producers; they don't have big industrial complexes; they tend not to have access to industrial services the way industries like General Motors do. These wineries generally are located on land that is specifically zoned agricultural. It makes good sense, because most of them started out as farms or have a fairly large component of their property that is a farm dedicated to growing grapes for the wine they produce. Because they're zoned agricultural, they don't have access to a lot of the services -- water, sewage and so forth -- that industrially zoned land does, and those that are in the Niagara Escarpment plan area, which many of our wineries are, obviously, have far greater restrictions on their property. That's fine; that's part of the price of being an industry that's agricultural in nature.
Over the past few years, we have seen a tremendous explosion of growth in our industry, as any of you who have been down to the wine region in Niagara and southwestern Ontario have probably seen. We have wineries now with big outdoor decks, wineries with restaurants, wineries with very large tour programs, and many wineries which are very small in nature but are making very large investments in land simply because the demand for our wines is growing and there's a concern that if we don't plant grapes, we simply won't have enough product to satisfy consumer demand. So people have a very large investment in land.
We believe as well that there's tremendous area for growth in the wine industry. There are about 40 wineries in Ontario right now. The next-smallest wine producing area is probably New Zealand, and there are over 350 wineries there. You can see from that that there is a pretty big potential for growth in our industry, and we think that growth over the next few years will probably be realized. We've had seminars in the past year or so where we've gotten up to 100 growers and amateur wine makers out to talk about how you go about starting a new winery. There is a tremendous unrealized demand and potential there that I think you'll see exploding in Niagara and southwestern Ontario in the next few years.
Our industry took a real hit and a big shock in 1996, because the Niagara region, in advance of some other areas of the province, went through a reassessment of all the properties in Niagara as part of a move to market value assessment. We didn't have a problem with the move to market value, but during that process, when the assessors came around to the estate wineries, they informed them that for the purposes of the new tax rolls that would be created, they were going to effectively sever the property and create two tax rolls, one for the farm part and one for the winery part.
They told us at the time that they would be doing us a big favour in doing that, frankly, because even though it wasn't strictly allowed under the Assessment Act, if they didn't do that the entire winery property would have to classed as industrial. If you were sitting on 100 acres of farm land, you'd be looking at a tax increase from a few hundred dollars at a farm rate to a few hundred thousand dollars at an industrial rate. Frankly, the notion of vineyards being classed as industrial land was ludicrous. The assessors recognized that, but there was really nothing in the Assessment Act as it stood to allow them to do anything other than assess it all as one factor, and that would be industrial because there's some industrial activity going on there.
So a new tax roll was created for the severed winery buildings and those buildings fell under an industrial assessment factor. The regional assessors were concerned about this and clearly unhappy about what they had to do but said that the current legislation gave them no choice. Partly, this was also predicated on the fact that between the last time the wineries had been assessed and the current assessment, there had been a couple of court cases, at which time they had looked at operations that were largely farm but processed the result of their farming activity in some way.
The most specific case was a case of a cherry producer who, in the course of taking out the pit from the cherry and putting it in a can, had somehow become an industrial operation. There was a legal case that clearly specified that this was an industrial activity and therefore the land could no longer hold a farm designation; it would be industrial. So when the assessors came to look at wineries, they asked themselves the question: "What on earth would be different between this, where you take some grapes and crush them and ferment them, and a guy taking a pit out of a cherry? In fact, aren't they both industrial operations?" The general view of the assessment office was yes, in fact they were.
Under this change, the parts of the wineries which housed farm machinery, which housed our winery retail boutiques and stores, all the commercial areas, storage facilities for wine that simply sat there until it went to the LCBO, all got classified as industrial because we also had tanks and bottling lines in part of the buildings, and that made the whole piece of it industrial.
The result of that was that wineries in the Niagara area were confronted with really staggering tax increases. In one case, Henry of Pelham, their tax rate went from $825 in a year to $25,000. It completely took them by surprise; they opened up their assessment bill and were faced with it. In many cases, it would have meant wineries shutting their doors, because a lot of these are very small mom-and-pop operations and simply did not have the capacity to deal with those sorts of tax increases.
The other big concern we had, aside from the likelihood of the estate wineries that existed continuing to exist, was the dampening effect it would have on any of these poor folks who had come to our seminars and were looking at starting up a winery, who had some farm land that they wanted to turn over to wine production. If all of a sudden you're told that your tax rate is going to jump by a couple of thousand per cent, it's sure going to be a discouragement to going forward with that plan.
With the wineries that were already in the peninsula, one of them decided that they were going to stop plans for construction to increase the size of their winery, because it became cheaper for them to rent commercial storage space in downtown St Catharines than to add a storage building on property they already owned on the winery property.
Another winery, located in Beamsville, that had spent a tremendous amount of money producing a lovely building there to house its winery, looked at and eventually moved into commercial space in downtown Toronto, which put them closer to their client base and lowered their taxes, if you can believe it, over the cost of the winery taxes.
You can see from that that if the situation hadn't been addressed, the tax increases that were scheduled to have taken place would have been pretty devastating to our existing wineries. Just as important, I think, is that when we talked to the regional assessors we brought the Ontario Federation of Agriculture in with us in the discussions, because they had come to us and said: "Hang on a sec. Maybe the wineries are only the first folks that have been clipped by this, but what happens if you are any kind of farm operation and you do some value-added?" We asked that question to the assessors, and they agreed that all value added farming operations in the province would be hit by this same tax problem when there was a general re-evaluation of properties in 1998.
I brought, so you can have a look, a picture that illustrates how ludicrous this is. This is a farm in Niagara that's an apple producer, and as a value-add they put a little stand outside their farm every summer and sell apples and apple cider that they make onsite. By virtue of crushing their apples and turning them into little jugs of apple cider, they would have attracted an industrial assessment on their property as of 1998. Somebody asked me if the little stand they sell the cider on would actually be an industrial or commercial building, and indeed it probably would be.
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At any rate, that was the scope of the problem. In fact, we would have called it a crisis in our industry. We first approached the regional municipalities in Niagara and the regional government and asked for their help, because obviously, to make a change like this means changing the amount of hard dollars they get into the region. Everybody was very supportive. They were all quite appalled at the change that had transpired and the lack of anybody recognizing that this might happen. We had resolutions signed from all of them arguing that this should be changed in some way.
Then we went to the province and asked for help to ensure that the new Assessment Act would deal with this problem of assessing value added farming, and specifically estate wineries for us, at the same rate as General Motors. We were gratified that through the public hearing process and through discussions with government, we were listened to and the problems we faced were dealt with fairly expeditiously. As a result, the new assessment system that's contained in this bill and Bill 106 harbours a number of differences from the current system that we believe allow estate wineries to be dealt with in a far more realistic way. They obviously will not be entirely assessed as farms, because we recognize that there are things going on on those estate wineries that aren't entirely farming; however, it allows for a change that recognizes the nature of their business.
Most importantly, among those changes there's a regulatory amendment to Bill 106 which was tabled before the committee along with Bill 149. It changes subsection 19(5) of the bill. That allows wineries that are located on land that's zoned primarily for agriculture to have the land that the winery building sits on assessed as farm. So the land underneath the building will be farm land for assessment purposes. That's the same as is done right now with farm residences, for example, on agriculture land.
This is appropriate, we think, because as I pointed out before, agriculturally zoned land doesn't have any of the services of industrially zoned land and therefore probably shouldn't be taxed at the same rate. It seems like a small change, but in fact the difference between the industrial factor in taxation terms and the farm factor will make a difference of thousands of dollars to the smallest of our estate wineries, which have most of their investment tied up not in their buildings and their value but the land and its value. It also means you won't have to artificially sever property in order to make the law work appropriately for these properties. Many of our small producers have told me that this change alone ensures they'll be able to stay in business and consider expansion plans, rather than facing the possibility of losing their wineries, which was a real possibility.
It's important to note that the change doesn't apply to wineries in Ontario that are large wineries located on industrial land already. When we talked to the region, one of the most important issues they brought to bear was: "Look, we understand your issue around farm-based wineries, but we sure as heck don't want to be facing a situation where Andres wines suddenly becomes a farm for assessment purposes." Andres, Vincor, all of the large players, agreed with that, don't believe it should change for them, and the amendment is a fairly neat way of getting around that problem and recognizing what the wineries actually do on their site.
I'd like to note another important change in the assessment system in general that's had a real impact on the wineries, and that's the ability to assign more than one factor to a property. As I mentioned earlier, one of the problems we faced in the current assessment system is that you have to make a choice; you're either industrial or you're commercial or you're farm, and you don't get to pick among them. The wineries are mixed bags. There is farming that goes on there, there are commercial activities through the winery retail stores and the tour and restaurant operations, and there is some industrial activity in producing the wine. Many of these activities aren't industrial in nature and therefore shouldn't be taxed in one package as industrial.
Under the new system, assessors will have the flexibility to come in, determine what activities are actually going on at a given location within given buildings, and split the assessment factors appropriately, assigning them the proper class. So winery boutiques can be assigned as commercial, sheds for farm equipment can be designated farm, and areas with fermentation and bottling equipment can be identified as industrial. We think this is logical, and it has a tremendous impact.
Chateau des Charmes is maybe a good example. They had just recently put up a very large chateau on the site of their vineyards; it looks a little like the Chateau Laurier from a distance. That building, which is virtually entirely commercial and tour-oriented in nature, carries today an industrial assessment, which puts their taxes at $78,000 more than they were in 1995, before the change came in. This new change will allow the assessor to go in, recognize those areas of Chateau des Charmes that are actually commercial in nature and tax them accordingly. Again, that change ends up reducing their taxes by about $50,000 in any given year, a much lighter and more reasonable burden that recognizes what they're actually doing.
To conclude, in the province's review of the assessment system and these committee hearings, it was critical for our industry and for other value added farming sectors that this issue of value added farming and assessment factors be addressed; otherwise, assessors in the future would have been faced with the same quandary that faces us today, namely, that there is only one way to classify a piece of property. Legislation had not recognized changes in the Ontario economy that clearly produced hybrid operations, with some farm activity and something that wasn't farming but wasn't industrial in nature.
We're really grateful that our concerns were heard and acted upon. We think the net result will be a more equitable system that recognizes these changes in the value added farming sector. It will have a tremendous positive impact on Ontario's estate wine sector. We believe that in years ahead, we can start to look at little bit like Napa Valley, with a couple of hundred wineries around, a whole lot of wine decks, lots of vineyards for people to tour around and lots of wineries to visit and taste in, and these changes will mean that that vision is still possible for our industry. Thank you very much.
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The Chair: Thank you very much, Ms Franklin. We have 12 minutes left, which will leave four minutes for each caucus, beginning with the NDP.
Mr Pouliot: Madam Franklin, we know the success story the Wine Council of Ontario has brought forward over the years. In fact, a presentation yesterday cited 15,000 metric tonnes, quite the endeavour indeed. The adjectives flowed while they talked, world-class table wines etc. So one would have thought that as a gesture, a vivid example of your success story, you would bring a lot of bottles to the members of committee.
Ms Franklin: Mr Pouliot, I would have been delighted to do that except for that peculiar provision in law that disallows our industry from donating wine. But if folks can correct that for me, the next time I'm here --
Mr Pouliot: You've come to the right place. There is a way to do those things. You give it to all three parties and you make sure you include the Association of Municipalities of Ontario.
You mention on page 1 that you are tremendously supportive of this endeavour. Then you go on to caution about not including the farm properties; in other words, we sense that what you gain on the farm land you could possibly lose on the property if given the opportunity.
Then you went on to illustrate the catastrophe that was to take place, and you cited General Motors. What we do here when we wish to analogize is that we cite the much-maligned banks. It's an easy target, so why not GM?
You mentioned Bill 106. If we blend 106 and now the offspring, Bill 149, you are one of the few presenters who is pleased. I'm just wondering if I missed something in your presentation. Are you fearful in some ways? On the eve of the downloading -- this brigade does not work in isolation; all the bills are meshed and the revolution is advancing on many fronts. Mr Maguire blessed us with his expertise because he knows there are 500,000 to 600,000 assessments pending. Mr Power will tell us that two months before, people don't even know the costing and they don't know in what form it will take place: What about an appeal mechanism and so on? Do you see this as just a plain win-win situation?
Ms Franklin: I guess we're in the enviable position of having seen God a little in advance of everybody else, because we had these huge property assessment increases already delivered unto us. We've been in the fortunate position over the past year of working with the regional assessors and sort of talking through, in their view, what the change would mean to us.
You're right, there's an element of the unknown here certainly, and an element of the unknown about what will happen at the municipal level once some of these responsibilities are downloaded. But given where we started from, we can't see a way where we could be worse off, and we think this goes a long way towards fixing some of what we had identified, at least in our industry, as some real and significant problems.
Mr Grimmett: Thank you, Ms Franklin. I'm going to have to take issue with one thing Mr Pouliot said. We've actually had a number of presenters who have been very pleased with Bill 149, not all of them from your industry, but it's clear from what you're saying that you are pleased with the changes.
I wanted to ask you about your comment that there should be an explosion of investment in the wine industry in the future. Do you see the wine industry growing, in terms of investment, in the number of acres planted, or is this going to be more in the by-products of the current acreage?
Ms Franklin: I think it's both. Our industry sees its growth largely in 100% Ontario products. They're growing at a rate of about 40% a year, so that's where our focus is.
We just finished a strategic planning process with the growers, and out of that we've identified that we are today still about 2,000 acres short of what we need to meet consumer demand, because it's just growing faster than we anticipated. In response to that, two things are happening. The larger wineries that aren't invested in land are signing 20- and 30-year contracts with growers in an effort to persuade them to plant more acres, which is a bit of a challenge, given the history the industry has had over the past 10 years. To believe you can actually make money in the grape industry has been a bit of a challenge. But we think we're there.
The other thing that's happening is that on the estate side, people are investing very heavily in land simply because they want control over their destiny and over the product. Vineland Estates probably would be a good example. It sits on about 100 acres of land; in the last year and a half, it has purchased and started planting about another 120 acres of land, so it has more than doubled its size and capacity. I think others are going to follow.
There'll be increasingly more estate wineries. For the past three or four years, we've had maybe one winery a year start up. For the past year and a half, we've seen an average of about four or five a year.
Mr Grimmett: Anything else in general government policy that you could recommend?
Ms Franklin: Other than changing that issue on donations of wine? I think that's it. We have been pleased to see that there seems to be a movement away from the notion of privatizing the LCBO, because for the Ontario industry it's an important vehicle. It's the only way, frankly that two-person, family-based wineries are able to sell their product all over Ontario successfully. Those two things, that and the assessment issue, have been pretty critical to us over the last year.
Mr Phillips: I congratulate your industry. As I said to the group here yesterday, 10 or 15 years ago there was concern about the future of the industry. The whole industry has turned that around, and now it's just a question of, how quickly can you grow it? The tourism aspect is a new aspect. I've been down there, and you've got the maps etc. It's a good piece of work.
You're supportive of the bill. We had our concerns about the impact on your industry, and I think the government proposals correct that. I don't have any questions. I appreciated your presentation, and I think you can assume that the provisions you're looking for will pass in the bill without difficulty.
The Chair: Thank you, Ms Franklin, for coming today and for your interesting presentation.
We'll have a five-minute recess.
The committee recessed from 1606 to 1614.
ASSOCIATION OF MUNICIPALITIES OF ONTARIO
The Chair: The Association of Municipalities of Ontario, would you please identify yourselves for the record, and then you have 30 minutes with which to make a presentation or leave part of it for questions. If you do that, I will divide the time evenly among the three parties. Please go ahead.
Mr Michael Power: My name is Michael Power. I'm the president of the Association of Municipalities of Ontario, and I'm the mayor of the town of Geraldton in northwestern Ontario. With me today I have Nigel Bellchamber, who is the chief administrative officer of the county of Middlesex. Nigel will be helping me with some of the technical parts of the bill. As a politician, I acknowledge that I don't always know all of the technicalities, and I'd much sooner defer to those who have that knowledge.
May I thank you for the opportunity to be here today to express the views of AMO on Bill 149, the Fair Municipal Finance Act, part 2. Like Bill 106, there are many aspects of Bill 149 that are favoured by Ontario's municipal sector. Municipalities have asked successive provincial governments for reform. AMO has consistently called for a fair assessment system for all. Bill 106 was the first instalment in a two-stage legislative reform process, establishing a new model of assessment and tax policy that will have immediate impacts across Ontario.
Generally, municipalities support the direction and intent of both Bill 106 and Bill 149. We consider the two pieces of legislation to be integral parts of a set, and as such, must be taken together. Bill 149 is essential, because Bill 106 did not address all of the issues.
Ontario property taxpayers contribute more than $14 billion each year to public sector spending, an amount almost equivalent to personal income tax in this province. The magnitude of these financial responsibilities means that our assessment and property tax policy framework is the foundation upon which Ontario's system of public services is built. Our association, representing municipal governments, our communities and property taxpayers, and the provincial government have a fundamental interest in an assessment and property tax system that is equitable, fair and sustainable.
In 1997, the provincial government undertook a province-wide reassessment based on 1996 values. Municipal financial stability and all of the proposed Who Does What reforms are entirely dependent upon the province's success in this endeavour. However, six months after the hearings on Bill 106, municipalities feel they aren't in any better position to take on the massive financial responsibility that the province is shifting to municipalities, because critical information is still unavailable.
The province has also announced that the responsibility for assessment services will be transferred to the municipal sector in 1998. While municipalities accept the policy rationale for a municipally managed assessment services system, like the Who Does What advisory panel, we still do not accept that the transfer of responsibility should occur before the new assessment and property tax system has stabilized. We had expected this to be part of this legislation, but it appears that it will be part of a separate piece of legislation, and we will comment on that at the appropriate time.
As municipalities plan for Bill 149 and its impacts, we need high quality and reliable information for financial planning if we are to make decisions that affect local tax policy. Municipalities and property taxpayers will look to the Ministry of Finance for a comprehensive package of information on new processes and on the impacts for households and businesses across Ontario. We have received some preliminary information, but municipalities have stated repeatedly that we need more in-depth information. For example, in order to be able to make decisions about whether and how to shift relative tax burdens among property classes, local municipal councils need their transition ratios, because these transition ratios tell them what the relative tax burden of each class is just before assessment reform.
We recognize the enormity of the task of reassessment, and we acknowledge that the government has devoted resources to this initiative. However, timing is still a major concern for us. While the many aspects of assessment reform may work well on paper, substantial implementation issues will inevitably arise from an undertaking of this magnitude.
In analysing and responding to the assessment reform legislation, our shared goals for reform -- and by "our" I am referring to we the municipal sector and you the provincial government sector -- should be to ensure the following: flexibility for municipalities, fairness in assessment, improved municipal financial autonomy and a clear and standard approach to assessment issues.
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While most of our specific recommendations are outlined in the appendix, we would like to highlight our key comments and concerns. We do not intend to go through all of the details in the appendix; we leave that up to the members. You may wish to have questions on them, and you can peruse them at your leisure.
Bill 106 started the process of giving municipalities greater flexibility with respect to their revenues by allowing municipalities to shift the tax burden to meet their local needs and to address local priorities. We believe Bill 149 should continue to promote that flexibility.
Bill 149 has given municipalities the option of providing tax rebates to charities and "similar organizations" of up to 40%. While municipalities understand the rationale for this provision to provide these rebates, we would like to reiterate our belief that this rebate should remain at the discretion of the local municipality. We would strongly object to any efforts on the part of the provincial government to make such rebates mandatory, as was the case with providing mandatory tax relief, deferral or cancellation to low-income seniors and the disabled. Municipal councils are well able to meet the needs of their citizens and respond to them. As well, given that "similar organizations" is not defined in the legislation and could result in problems with its application, we recommend that it be removed from the legislation.
A new assessment system brings new transition ratios that are the starting point for municipalities and the base upon which local tax policy decisions will be made. The importance of having immediate access to these transition ratios cannot be overstated. While we appreciate that reforming the assessment system takes time and that there are complexities involved in calculating transition ratios and the ranges of fairness, it is completely unacceptable that less than three months from the date the changes are to take place, municipalities do not have all of these numbers.
It has been a recurring theme in AMO presentations to the provincial government that if municipalities are to manage new responsibilities, it is critical that we have control over our finances. With respect to Bill 149, interim financing provisions are key to stable municipal revenue. Municipalities are concerned about interim billing and the ability to issue an interim tax bill that is reasonable and provides the necessary cash flow needed to operate their municipalities. There is concern that the actual language employed in the bill will make cash flow exceedingly difficult. As set out in more detail in the appendix of this document, we are recommending an amendment to the bill to address this concern.
Further, to assist municipalities to cope with the fiscal challenges of the Who Does What transfer, the government must demonstrate how the bill will facilitate municipalities in levying more than 50% of their previous year's assessment if necessary if they are particularly hard hit by the Who Does What initiative. We would favour a general authority to do so rather than municipalities individually having to apply to the minister, as the wording suggests. As accountable governments, municipal councils can be trusted to exercise proper judgement in this regard. We don't need to have individual municipalities being forced to make individual applications to the minister in order to get an exemption in regulations.
Another challenge for municipalities is to deal with the impacts of the number of subclasses that will be allowed under Bill 149 for purposes of tax reductions. While we support the need for discretion to allow for local circumstances, we believe that any discretion should rest with the municipality, not the minister.
AMO would like to comment on two issues which are of great concern to our members: the implications of the loss of the gross receipts tax and the effects of the elimination of the business occupancy tax on the business improvement area program.
Firstly, municipalities would like to emphasize that the loss of the gross receipts tax must in no way set any precedent which would limit the powers of municipalities to seek revenues from municipal rights of ways.
Secondly, it has become increasingly clear to us that the negative implications for the BIA program must be addressed in this legislation. In fact, we highlighted this issue in our Bill 106 standing committee presentation as a concern and something which needed to be addressed, even though in principle we continue to support the elimination of the business occupancy tax.
We have learned at AMO that a number of BIA programs have been discontinued and many are in the process of determining whether they can survive. We believe that finding a way to salvage this program meets the goals of both levels of government to create jobs and to promote local economic growth and development. AMO would be pleased to work with this government to identify ways to address the BIA problem.
It is critical that the new assessment system promote fairness both across the municipal sector and within the assessment system itself. Municipalities are ready and willing to make tax policy decisions that are fair and equitable, and we will be accountable for those decisions. However, the assessment legislation under which we operate must promote fairness as well.
In making your decisions about payments in lieu and how these revenues will be shared, we urge the government to take into consideration the negative impact this could have on a number of municipalities. As you are well aware, some municipalities' budgets encompass a greater degree of municipal in-lieu payments than others. The impact will be different from municipality to municipality, and in some cases it could be extremely significant. In order to assist municipalities in setting their budgets, it is critical that the province reach a decision on payments in lieu very quickly and clarify a fair and equitable approach to revenue-sharing with the school boards as well. In addition, we wish reiterate our long-standing position that the province should live up to its commitment to pay its fair share of municipal taxes on provincial properties located within municipalities.
We would also urge the same consideration for fairness in the area of small theatres. Bill 149 provides for tax exemptions for the theatre industry in Ontario, both in the larger theatre sector in Toronto and the smaller theatres province-wide. In order to ensure a fair application of this exemption, we recommend that the legislation be amended to provide greater clarity about usage of the property and what reasonable amount would qualify for the exemption. Is it feasible that three days a year is sufficient to earn the exemption? We think that is something the government must deal with.
While AMO firmly supports giving municipalities greater flexibility when it comes to assessment, we also recognize the need for a clear and consistent approach to assessment issues to ensure a measure of fairness and consistency. With so many new responsibilities being thrust upon municipalities next year, providing clarity in advance will help make the transition to the new system easier.
We believe further clarity is required on such issues as:
How the data regarding an in-year assessment change will reach municipalities expeditiously. For example, the earlier in the year they can be captured for taxation, the better.
How the acreage will be determined for linear properties, for example, railway tracks, and how pipelines will be assessed.
How appeals for managed forests and farm tax rebate decisions are to be appealed to the Ontario Ministry of Agriculture, Food and Rural Affairs. We in AMO believe that the provincial government recognizes the importance of having an appeal process that is simple, consistent, fair and efficient. For this reason, AMO recommends that assessment appeals be handled by the same body and not split with the Ontario Ministry of Agriculture, Food and Rural Affairs.
In conclusion, AMO urges this government to provide clarity on the issues identified in our submission and as outlined in more detail in appendix A.
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While the principles of fairness, flexibility, revenue stability and consistency may be advanced in the two pieces of legislation, we all have a great challenge ahead of us to actually implement this new fair assessment system in Ontario. Given the magnitude of the changes and the anticipated tax policy changes, municipalities, as should the province, will be carefully watching to ensure that these changes do not erode the municipal tax base. As indicated in our submission, Bill 149 needs to be further refined with a view to ensuring that the goals and objectives outlined in the legislation can actually be achieved.
Timing continues to be the key issue for municipalities. Tight legislative time frames will make it difficult for any upper-tier municipality wishing to delegate its tax-setting authority to the lower tier.
Finally, we acknowledge that the government is trying to provide support by way of an education program, but there still needs to be a great deal more done to assist elected officials, senior staff and the taxpayers in understanding the impending changes. As elected and accountable officials, we accept responsibility for communicating with our constituents, but we believe there is a role for the province to play in educating all stakeholders in the new system. We thank you for the opportunity to make a presentation to you and the members of your committee today.
The Chair: Thank you very much. We have approximately 12 minutes left. There will be about four minutes per caucus for questions. I'll start with the Liberal Party.
Mr Phillips: We too are seeking clarity. Honest to gosh, I used to be a businessperson, and I would never run a business like this, making these decisions and having no idea how it's going to impact. We've never been given any indication of how this is going to actually hit the taxpayers in April 1998. It's going to be quite an interesting time. The government, I'm sure, has impact studies, but they won't release them to us. They have to have had them to make the decisions, but they're keeping them hidden, in our opinion, because they know people would storm the Legislature, and understandably so; there would be some substantive changes. So we're operating in the dark. But I think you can help us a little bit.
They're eliminating the business occupancy tax. Every municipality we've talked to has said they're going to put it back on the commercial and industrial realty tax. Then the government has said, "We will help small business, though, by permitting lower tax rates on properties assessed at lower value." In our opinion, the business occupancy tax probably benefited small businesses; the proposal is to benefit small landlords. If you've got a small building, you'll have a smaller tax rate; a larger building, a larger tax rate.
Has AMO looked at the proposal of these differentiated tax rates on commercial and industrial properties? Have you any view for us on whether AMO thinks that's a good idea or has any problems with it?
Mr Power: As you know, Mr Phillips, we have been in support of the removal of the business occupancy tax. That has been a problem for a lot of municipal governments, wherein they were unable to collect, especially in an area where the businesses leased all of the equipment contained within --
Mr Phillips: That's a done deal. I'm just thinking of how to accommodate.
Mr Power: But looking at that, that's why we're in support of that. If we look at the tax ratios -- and, Nigel, I don't want to put you on the spot, but maybe you can help me a little bit with them, because I'm not an accountant, and I don't really understand them and I don't deal with them on a day-to-day basis.
Mr Pouliot: Yes, you do.
Mr Nigel Bellchamber: As Mr Phillips pointed out, there appears to be the opportunity for several subclasses within the commercial and business classes that would allow for graduated tax bands. If it doesn't result in a progressive rate, that is, if the first X dollars of every commercial property, for instance, isn't treated the same and the second Y dollars isn't treated identically, then it would have the effect that you point out. However, our understanding at the moment is that the intention is that the first X dollars of every property, regardless of the total value, would be treated in a similar fashion. So it could potentially have a beneficial --
Mr Phillips: That's not how it would work. Let's say you are leasing property in a building worth $500,000. It will have a substantially lower tax rate than a building worth $5 million, because the building worth $5 million will have one rate for the first $500,000, another rate for the next $2 million, and then another rate for the remainder, so it will be a substantial advantage for small property owners and maybe that's what they want, but it's not necessarily a substantial advantage for small businesses, because in my neck of the woods a lot of small businesses rent space in large buildings, industrial malls, and that industrial mall will not have the same benefit as a small one.
I had another question on education and it's very unusual when we're dealing with property taxes, but the major property tax bill is over in another committee, education, where a third of your property taxes that you will have to raise will be set by the cabinet by regulation. You'll never know what they're setting. They'll just write a regulation and send you a bill, because all of the education part on businesses, which is probably 53% or 54% of your business property taxes, and half of the old residential education taxes will be set by regulation. As I say, the province will simply say to Geraldton, "Raise us $1 million and send the cheque over to the local school boards." They have said they are going to freeze taxes, although I'm not sure whether they're freezing the educational mill rate or the amount of money they are going to raise on taxes.
Has AMO taken a position on this, and have you any advice for us on the proposal on education taxes. The reason I raise it is that it is $6 billion worth of property tax set by regulation.
Mr Power: As you're aware, Mr Phillips, municipalities have never had the opportunity of having anything to say about the educational mill rate. That was always set by boards of education. Municipalities were handed a bill, and they were expected to levy for it and turn it over to the school boards.
Under the system that the government is proposing, instead of the local school board handing you the bill, the province will hand you the bill, so that in terms of a change in direction from the municipal point of view, we will still get a bill. It will be less than it was in the past.
Mr Phillips: So AMO doesn't really care one way or the other.
The Chair: Thank you, Mr Phillips. We have to move to Mr Pouliot now.
Mr Pouliot: It's a renewed pleasure, Michael. I recall vividly that about 25 years ago we sat on respective councils, through the courtesy of our electorate, and exchanged views. I valued our association then and certainly ever since. It's a plus, and I have benefited a great deal. AMO does benefit by way of your commitment, integrity and expertise.
You must be filled with anxiety. These are exciting times, challenging times. You are about two months before the massive changes of responsibility to the 95% of the population you represent through AMO. The fiscal year starts on January 1. The province has embarked on the largest assessment endeavour ever in North America, 3.8 million units. At least 500,000 will be appealed; the ministry says that. The tapes will not reach before the end of April at the earliest. You are seeking by your representation the ability to go above the 50% presently allowed for, the interim tax levy. Your interim tax levy, inclusive, will include the business occupancy tax. Some people are expecting a decrease in taxes. They heard the Premier. I'm not luring you into that kind of minefield, Michael, but it's a bit of a mess.
I just came back from the riding of Lake Nipigon and was handed one of these documents, and it raises more questions than it answers. "Who Does What" is indeed the line put forward by the government, but they want to know who pays for what and when. Where will the money come from? What about the cash flow that you have mentioned? What are your comments?
Mr Bellchamber: You're quite right. The cash flow problem could be quite significant, and it will vary from jurisdiction to jurisdiction, whether it's upper tier, lower tier or whatever, and that was why the recommendation was that municipalities be entrusted to determine the amount that they levy by way of interim bill to meet their cash requirements.
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Mr Pouliot: In our small world I have to believe some people sometimes, and the highest authority in these endeavours is the Premier. The Premier has said to us to expect anywhere from a 5% to 10% decrease in municipal taxes, and it has also been said repeatedly that this is revenue-neutral. If my taxes go up, is that revenue-neutral? A lot of people expect their taxes actually, if not to go down, to be at the same level.
Mr Power: Mr Pouliot, we at AMO have said consistently that it is the responsibility of municipal government to set the tax rate at a municipal level based on the requirements to deliver the services that our citizens want, expect and need.
We accept at face value the Premier's pledge to us that the realignment of responsibilities will be revenue-neutral. We have no reason not to take his word, and so until evidence can be put to us otherwise, we continue to accept the word of the Premier of the province in this regard.
The Chair: Time is effectively up. We'll move to the government caucus now.
Mr Grimmett: I would like to congratulate you gentlemen on a very clear presentation. The brief itself is set out very practically, with the recommendations at the end.
I just had a few questions arising from your presentation. I note on page 3 that you're recommending that the wording "similar organizations" be removed. On page 4 you have made some recommendations regarding the interim levies. I have a question for you on page 5. In the middle paragraph you say that you don't want a limit on powers of municipalities to seek revenues from municipal rights of way. Can you clarify that for me? What do you mean by "municipal rights of way"?
Mr Power: We're looking at things. If you do away with the gross receipts tax, which as you know was essentially paid by Bell Canada because other telephone suppliers didn't, we're concerned that that not become a methodology for eliminating the ability of municipalities to receive revenue for railway rights of way, Hydro rights of way, those kinds of things, highways.
Mr Grimmett: So you're not talking about the road allowances that municipalities own? You are talking about them as well?
Mr Power: Yes.
Mr Grimmett: In the final paragraph on page 6, you're talking about smaller theatres. Are you concerned here about possible abuse, that theatres might start to claim that they are theatres when they are not being used?
Mr Power: We don't think that the vast majority of people involved in the arts would, but there is always the occasion where somebody chooses to utilize a piece of legislation or a regulation to further their own interests rather than the interests of the community at large, and so we're saying that it would be in order to have some parameters to define the small theatre.
Mr Grimmett: I notice your recommendation at the end suggests "theatres owned or operated in leased facilities." Is that the recommendation on how to get around that problem?
Mr Power: Where are we?
Mr Grimmett: Page 12. Or are you recommending a certain number of days that they be used for that? I just want to be clear on what your recommendation is.
Mr Power: That's the issue, and we're turning it back to you on the government side and saying: You have put it forward. We're suggesting to you there's a problem here. We're asking you to fix the problem you have created.
The Chair: Thank you very much, Mr Power and Mr Bellchamber, for coming here today.
BREWERS OF ONTARIO
The Chair: Will Mr Jan Westcott, the executive director of the Brewers of Ontario, come forward please, and Ann Zegarchuk from Molson Breweries. You have half an hour which you can use entirely for presentation. If you have time left over, I'll divide it equally among the parties for questions, but your time is for you to use as you wish. For the record, would you please introduce yourselves.
Mr Jan Westcott: Thank you, Mr Chairman and committee members. My name is Jan Westcott. I'm the executive director and CEO of the Brewers of Ontario. That's an industry trade association that represents licensed brewers in Ontario. With me today -- I'll start on my left -- is Iain Fraser. Iain is with AEC Valuations and is an adviser to the brewing industry on these issues. John Wiggins is the president and chief executive officer of Creemore Springs Brewery Ltd up in Creemore and coincidentally is also chairman of the Ontario Small Brewers Association. On my right is Ann Zegarchuk. Ann is the vice-president of taxation for Molson Breweries of Canada.
I appreciate the opportunity to speak to you today. I'm going to make a very short presentation, and then we will entertain some questions. The industry I represent and the companies I represent are about 12 -- the number changes -- licensed brewers, large and small, and as I say, my colleague John Wiggins represents most of the smaller brewers, but the fact is that the industry we talk about represents 98% of the business that exists in Ontario.
Our business is one in which over the last number of years we have faced tremendous challenges, perhaps more so than many other industries. As the Canadian market opened up to American beer with the liberalization of trade between provinces and the FTA and NAFTA, brewers, both large and small, had to adapt in order to survive, and we have done many things to try and do that.
Our contribution to the Ontario economy and to provincial revenues is substantial. Of the total direct jobs in the beverage alcohol industry in Ontario, 74% are accounted for in the brewing business. Our industry spends about $500 million in Ontario each year operating our businesses. We're kind of unique in the sense that of all the things that it takes it run our business -- and we are primary manufacturers; we take raw materials and turn them into finished products -- the only thing that we don't buy in Ontario pretty much is barley, because we don't grow barley in Ontario. But we tend to alienate our friends in the west a little bit because even though we don't grow barley in Ontario, we ship all the barley we buy in Alberta and Saskatchewan to Thunder Bay, and Canada Malting turns it into malt for us and supports 60 jobs up in Thunder Bay. I guess hops would be the other one. Virtually everything we use in Ontario is sourced here in Ontario.
We do business with 8,000 different companies in Ontario, the vast majority of which are small business, in conducting our business in the manufacturing, marketing and distribution of our products. Directly we generate about 6,100 jobs in the business and another 20,000 jobs indirectly. We have invested about $300 million in the province over the last five years to continue to evolve and grow our businesses. We pay about $24 million a year in property taxes, and we and our customers last year contributed about $830 million-odd to the government by way of sales and commodity taxes on our products. We are significant taxpayers. All in, our industry and our products and our consumers directly contribute about $1 billion to the revenue stream of the province. We also make significant contributions to the cultural, artistic and athletic facets of the province and are quite proud of those contributions.
Notwithstanding that we have worked hard to compete in the Ontario market, we have faced difficulties, and we continue to face difficulties, from declining consumption, increasing import volumes and a relatively new phenomenon over the last couple of years, unregulated and untaxed you-brew commercial producers who are competing directly with us.
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Our consumption over the last five years has decreased by 9.3%. Imports are up 14% and the unlicensed and unregulated you-brew and you-vint outlets have grown to over 450 outlets. I contrast that with the 432 Beer Stores we run. It has been a challenging environment.
We certainly are striving to achieve a competitive footing, and we have been very, very successful -- notwithstanding the opening of the markets and a lot of stiff competition from much larger companies in the US and elsewhere -- in building our export business. We're up almost 50% over the last five years. Clearly, undisclosed or hidden taxes are a major factor in our being able to continue to grow our business both here and abroad, but particularly in the export market. Innovation and new technology that we have invested in has helped reduce production costs, but we have to be mindful of our competitive stance versus some of our larger competitors.
What's hard to read there is that Anheuser-Busch, whose main plant is in St Louis, produces about 14.7 million hectolitres of beer in St Louis, and they pay property taxes of about $7.8 million; we, in Ontario, produce about 10.2 million hectolitres of beer in our plants, and our property taxes are running around the $10-million mark -- just to give you some sense of what that means. We feel strongly that our major breweries and our smaller breweries are contributing more than their fair share of municipal and education funding, particularly when compared to our direct competitors in the United States.
We want to talk to you about four specific things today. We think Ontario brewers should have a level playing field available to all Ontario businesses. There should be only one business class of property taxes, not separate commercial and industrial classes. We have historically been overtaxed for property tax purposes. Business tax on brewers is assessed at 75%, the highest in Ontario, and classification as an industrial property means the industry is generally taxed about a third higher than businesses which are classed as commercial, yet increasingly we see our competitors emerging and classifying themselves as commercial versus industrial enterprises. We don't believe that we should be targeted for special taxes, and we feel that the combining of industrial and commercial classes of property into one class would prevent targeting.
We have some views that we'll share with you on property tax reductions not being phased in, and there is a very specific issue to the brewing industry, one having to do with the assessment of tankage, and we don't think that we should be penalized for producing in Ontario.
We feel that the industrial and business classification of property tax into one business class for property tax purposes is the right approach. The initial creation of industrial and commercial classes of property back a number of years ago wasn't a political determination but really was an outfall of actions that were taken in 1970. Our properties, along with many other businesses, developed significantly our industrial properties during the 1950s. Commercial development of property took place during the 1960s, and we saw during the 1960s a decrease in the value of the industrial properties due to depreciation and to an increase in the market value of the commercial properties, largely driven by speculation.
The constant assessed values of industrial and commercial property were frozen in 1970 with the result that taxes on industrial properties have been increased at a much greater rate than taxes on other classes.
Industrial properties are significantly overtaxed relative to commercial properties. There's a huge variation in tax rates across Ontario as well. We think uniform treatment would reduce the administrative complexity. We operate in 16 different communities around the province, and this is a significant issue for us. There is no public policy reason that industrial property should pay more than commercial; in fact, industrial properties consume fewer municipal services by and large. Bills 106 and 149, as proposed, perpetuate this tax discrimination.
For the brewing industry, the continuation of different classes is quite unfair. You-brews and you-vints and brew pubs, whose beer market share is increasing at a pretty dramatic rate, become classifies as commercial and will be taxed at a lower rate. The competitive disadvantage will be exaggerated where the you-brews and you-vints or brew pub qualify for lower yet, small business tax rates. Commercial and industrial properties should pay the same rate of tax, regardless of where they're situated or how they deem themselves to be falling into the market.
Taxes under the proposed system are governed by tax ratios or bands of fairness which are going to be set by the province, and transition ratios which will be set by municipalities. Transition ratios can be outside the band set by the province, but the ratio cannot exceed the ratio of the tax on a class in 1997, related to the residential taxes that year. Municipalities could maintain the disparity of treatment that exists today by setting transition ratios at today's levels of tax, and what we understood this exercise to be about was getting to equity to the greatest extent possible. There is no mechanism in the proposed legislation to bring transition ratios closer to the bands of fairness, and our concern is that those inequities could continue on forever.
We don't believe that targeting a specific industry should be permitted. Under the old act, the minister could establish classes of properties. In some municipalities, classes known as large industrial were created. This resulted in targeting specific industries and in some cases specific taxpayers -- again, somewhat inequitable. A current example for us where we operate plants is Etobicoke. The relative tax burdens are that if residential is a base of 100, commercial is 2.47 times that, yet we're at just over 5 times that. We think that's particularly unfair and is going to be regressive, certainly in terms of building competitive businesses.
Historically, the brewing industry has been the target for special taxes. Targeting impedes competition, both nationally and internationally. Property taxes should not be used to penalize taxpayers who operate within the same provincial boundaries. I heard a quote this morning which I thought was pretty good: Property taxes should not be the basis on which industries compete across the province. There are other, much more appropriate ways for us to compete than to be given either incentives or disincentives through the property tax system.
Under the proposed legislation, municipalities may prescribe additional classes and subclasses of properties, and Bill 106 and Bill 149 allow the minister to make regulations in a much broader context, all of which increases the potential for targeting. In fact, much of it is on a discretionary basis, which is a significant concern. We think one of the ways of dealing with this is to combine and have one business class for both commercial and industrial. That would eliminate a number of these problems. In fact, doing that would be consistent with what the government said and the definition it established in the Education Quality Improvement Act, where there are just two taxes: There's residential and there's business.
We also don't believe that tax decreases should be phased in. We have a situation where people have been paying inappropriately and unfairly much more than their share for a long period of time. It's a bit analogous to finding out, with someone you've convicted of a capital crime who has been sitting in jail for 15 years, that the DNA now says he's innocent but you don't want to let him out right away; you're going to phase him out. That seems rather unfair to us. We think these inequities need to be addressed and resolved as quickly as possible, recognizing the sensitivity that exists around the other end of the scale of having to bring people up.
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A phase-in which is spread over many years will greatly increase the complexity relating to the reassessment and increase the administrative cost to government, particularly as we get three years out and we start then having evaluations later on. I'm not sure how people are going to keep track of that, it's going to become so complex. A tax decrease on reassessment represents an acknowledgement that the property has been historically overtaxed and that taxpayers have been contributing much more than their fair share while other have been underpaying. While it is easy to argue that the policy decision to phase in tax increases may be appropriate, financing that decision by taking money that shouldn't have been collected in the first place is quite unfair.
The last issue I want to raise with you -- I'm just about done -- has to do with the specifics of our business, which is the brewing of beer. Brewing tanks are fundamental to the brewing of beer and should continue to be exempt from tax. We can't do our business, we can't make our products, if we don't have tanks. Since 1953, the policy has been that process tanks utilized in the brewing process are exempt from tax under section 317. It would appear that assessors have been directed to include these tanks when setting values for the 1998 reassessment. Including these tanks will further decrease the competitive position of the brewing industry by directly increasing our costs. Brewing tanks are production machinery and equipment that are used to make our products, and they should continue to be exempt from taxation.
So we submit four things to you this afternoon:
(1) That there should be a level playing field for all businesses. There should be one class of business tax.
(2) We should eliminate to the greatest extent possible targeting either by penalizing or giving incentives to taxpayers.
(3) Over-assessed taxpayers should start to see the benefits of these changes as quickly as possible.
(4) In terms of the brewing industry, process tanks should remain outside the assessment base.
The Chair: Thank you very much for your presentation. We have about four minutes per caucus for questions, starting with the NDP.
Mr Pouliot: Thank you for a refreshing and innovative presentation. I will only focus briefly on two of the four recommendations you have. I don't know how much impact taxing those tanks would have, but -- lifelong learning -- I would wish to know at some point. It's obviously quite important.
You mention that should a decrease in taxes occur, that process should not be phased in. It's an admission that people have been overburdened, and why not give them the rebate now? Should an increase in taxes be phased in?
Mr Westcott: That's a difficult one. I understand the problem: As one goes up, one comes down. One of the approaches that I think should be looked at is that all the people who are paying too much today might be looked at as one class and come down. The short answer is that I think there are ways of working it out so that for those people who are overpaying, that period of time can be shortened as much as possible, without necessarily impacting the people who are going to pay more.
Mr Pouliot: For the sake of presenting it in the best possible way, I loaded the argument by assuming that this would be revenue-neutral, that the bottom line was not impacted.
The reason I said this presentation was innovative and imaginative is that you mentioned one end rate of taxes for both commercial and industrial. With or without threshold? For instance, a small bakery would pay the same rate of taxes as the much-maligned bank?
Mr Westcott: The reality is that we're all doing business in the same community, we're all making a contribution, and yes, we think that's a reasonable prospect. Obviously there are going to be differences in the size and value of the operations that will be reflected in the absolute dollars, but as a principle, we think it makes sense for everybody.
Mr Pouliot: You're about to get an interest-free loan from the Royal. I mean, this is a very good argument that they would like to hear, that they would be taxed at the same rate -- there's quite a range here and the government has some thresholds and it's a moving world. Unless we build in a progression of taxes -- sure, they would pay more, but the rates must reflect the differences of the industry they're in. I like your approach. It's candid and straightforward, but as you begin to develop those themes -- this is the comment I'll leave you with -- you find out one is a special sector. For instance, mining is not renewable and fishing is seasonal and farming is dependent on futures markets, so all those things have to be factored in.
Mr John Wiggins: If I may make a point, I'm smaller than most bakeries or mining areas, and many of the breweries I represent are. We pay tax in many other ways that are a little tough, and to be hit with these taxes at this rate becomes terribly unfair to us. Let's say the situation you prescribe, again there is an inequity there.
Mr E.J. Douglas Rollins (Quinte): Thanks for your presentation. It's interesting to listen to a more sensible presentation than I have been for the last day and a half. I've just come out of the education committee, and it's been a little different.
Is the decrease of 9.3% in the consumption a decrease of all beer, or is that just in the ones you associate with the you-brews?
Mr Westcott: In Ontario, the licensed industry represents about 95% of all beer; there's 5% which operates outside the licence, which would be largely you-brews, some smuggling, some bootlegging and that sort of thing. We represent 95%. Of that 95%, our membership has seen a decrease in their sales of 9% over the last period of time.
Mr Rollins: The wine industry has seen a bit of an increase. Does that have something to do with the beer? Is that related?
Mr Westcott: There are a lot of different factors. I wouldn't say that our decrease is their good fortune directly. As you know, I used to be the president of the wine institute, so I have a pretty good knowledge of both industries. The fact is it's demographics, it's lifestyle, it's taxation. There is a series of factors. And let's not kid ourselves: Many of you will remember the summer of 1992, when we had no summer; our business went down by 6% in one year alone. So there are many, many factors. The fact is, it's one of the issues we're coping with, successfully so far, but it's a constant pressure on the business, and what it means is that our ability to take on additional costs is quite restricted.
Mr Rollins: I know you've made the request to have your tanks remain exempt because you're in the brewing industry, but if you just turned your head around and put a tax assessor's hat on and went over to the industry across the road, can a portion of his be not taxed too? Is it fair?
Mr Iain Fraser: I think it's a generic issue. I don't think it would be just brewing tanks. It would be tanks used in the mining industry, tanks used in any production process. Today, they're not taxed.
Mr Rollins: In the refinery business, are the tanks taxed? I believe they are, but I could be wrong.
Mr Westcott: To give you one other example, if General Motors or Ford invest millions of dollars to put a new assembly line in, that assembly line is not taxed; it's part of their manufacturing base. Well, tanks are part of our manufacturing base, and that's the argument we would make. You can't make beer without that. Ford and General Motors and the car guys would say you can't build cars if you don't have an assembly line with robotic arms and all that sort of stuff. If you're not going to tax that, how can you turn around and tax our basic manufacturing machinery?
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Mr Ted Arnott (Wellington): I'm getting very thirsty listening to you. Like my friend Mr Rollins, I'm concerned about the brewing tanks issue too, and I hope we can undertake to look into it for you and get back to you with some sort of response, because you certainly seem to make a very compelling point. It would appear that assessors have been directed to include these tanks. You're certain that the assessors have been directed to include the tanks?
Ms Ann Zegarchuk: Roughly about six months ago, we were informed that the assessors were told to assess tankage, and in fact various members of the brewing community and other business communities were asked for a listing of their tankage. At that point, we did not provide it to them; they said it was going to be used when they were doing the reassessments. Recently, I have heard that as a result of the number of reassessments that have to be done, it is simply not within the realm of possibility to now start placing evaluations on tankage; however, they did say they would like to. But at this point it's not as big an issue as it was six months ago.
The other point I would like to make is that there are two types of tankage. The process tanks are comparable to, as Mr Westcott said, the manufacturing lines of any other company, and those are fairly significant in the brewing industry. And then of course there are the storage tanks for storage of materials, which in all industries are taxed as structures.
Mr Phillips: Just so I understand your issue, right now you pay $24 million a year in property tax. Did I understand that you pay it 70% business occupancy tax?
Ms Zegarchuk: It's 75%.
Mr Phillips: And that is on the basis of the realty tax you pay on industrial? Are all your properties assessed industrial?
Ms Zegarchuk: Yes.
Mr Phillips: All of them, so you pay a BOT of 75%. I guess the bill will help you in one respect, and that is limiting the business occupancy tax and then it pools back on to the industrial realty tax. How much do you think that will save your industry a year?
Mr Fraser: I don't think it's going to save us anything, because at the end of the day, it's supposed to be a neutral circumstance.
Ms Zegarchuk:. There are a number of factors there. First of all, we have no idea what the mill rates are going to be or indeed what they're going to be in different areas. We have no idea what's going to happen with the education taxes and how they are going to be imposed upon industry and how they're going to be allocated among, say, commercial, industrial etc. At this point in time, not only is the industry not able to calculate their 1998 business taxes for planning purposes, but I agree with Jan; I would say it is probably highly unlikely that there is going to be an actual decrease.
Mr Wiggins: I'd like to speak to that, if I may. My little brewery happens to be in an old hardware store -- it used to be commercial; it's now industrial -- in the little village of Creemore in the township of Clearview, and the township of Clearview has a very small industrial base. We're about it. Anything that is going to reduce the industrial base at that local level is going to frowned upon if in fact it's going to be set at the local level. To answer your question, yes, the large industrial base areas are more likely to find it revenue-neutral; we'll find it a bit of a kick in the rear end.
Mr Phillips: The government essentially has said that the BOT is going to be put back on the industrial realty tax, and the BOT across the board will take realty taxes up about 40%. If you follow that logic, you're eliminating the BOT, which is the 75% -- you figure that equation out -- and you're moving to 40%. If you were paying $8 million a year in BOT, it's going to drop to $5 million. You must have done that calculation. You are quite worried about making sure you get the tax break quickly, and I assume that was for a reason.
Mr Westcott: I take your point. That's one of the reasons we're a little nervous about targeting. The fact is, when you talk to municipalities, they're not in a position yet to tell us, as Ms Zegarchuk said, what next year is going to look like. What we do know, just from informal discussions, is that they think they're going to get to neutral, so whatever benefits may appear there --
Mr Phillips: I know. I think you made a good point.
Mr Westcott: There's this tremendous ability on the one hand to make it more equitable by making the rules clear, but then they're putting in a whole bunch of things that fiddle it.
Mr Phillips: If in the city of London Labatts pays $1 million less in property tax, the other property taxpayers will be picking it up, and that's always challenging.
Mr Westcott: Or we will be back to the targeting, so that no matter what happens --
Mr Phillips: That's my point, so I understand: your targeting and your accelerated tax cut thing.
The Chair: The time has expired. Thank you very much for your very interesting presentation.
The committee is adjourned until 9 o'clock tomorrow morning.
The committee adjourned at 1717.