C2020-0742 ATTACHMENT 3
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Financial Task Force
Report and RecommendationsTAX
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C2020-0742 Attach 3 ISC: Unrestricted C2020-0742 ATTACHMENT 3 Organization of the Report
Table of Contents Contents Organization of the Report...... 2 Table of Contents...... 2 Summary of Key Messages...... 4 Mandate, Focus and Acknowledgement...... 5 Mandate and Responsibilities of the Task Force...... 5 Reasons for More Focus on Funding Flows relative to Spending Discipline...... 5 External Members of the Task Force...... 5 Members of City Administration that offered Subject Matter Support...... 5 The Context for Funding City Operations...... 6 Sources of Operating Dollars...... 6 Uses of Operating Dollars...... 9 Evolution of Municipal Taxation Policy in Calgary...... 10 The Important Role of Property Taxes ...... 10 Textbox 1: Existing Taxation Authority Outside Property Taxes...... 13 Using Property Assessments to Inform Property Taxation...... 13 Responding to Calgary’s Cyclical Economy using Existing Tools...... 15 Increasing focus on evidence and monitoring...... 15 Enhancing practices and processes that use existing revenue authority ...... 15 Textbox 2: Independent Review of Non-Residential Assessments and Complaints...... 16 Measures Proposed by the Task Force...... 17 Improving the Understanding of Municipal Finance Circumstances...... 19 Achieving a Better Understanding of the Property Tax Bill...... 19 Responding to an Increasing Municipal Fiscal Imbalance ...... 19 Measures Proposed by the Task Force...... 20 Supporting Regional Economic Development...... 22 City-Shaping and Building in a Regional Context...... 22 Assessing the Impact of Activity in the Region on The City’s Financial Position...... 22 Measures Proposed by the Task Force...... 22 Bringing Property Taxation into the Twenty-First Century...... 24 Reducing Reliance on a Land and Property-based Approach to Taxation...... 24 Growing the Size of Non-Residential Accounts...... 24 Addressing inflexibility in Non-Residential Sub-Classes...... 24 Changes in Market Values resulting from Gentrification...... 25 Measures Proposed by the Task Force...... 25
2 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Organization of the Report
Preparing for changes that would occur as the economy evolves...... 27 The Emergence of the Rapidly Growing Digital Economy...... 27 Municipal Revenue Opportunities available through the Digital Economy ...... 27 Measures Proposed by the Task Force...... 29 Making Calgary More Competitive, Livable and Attractive...... 31 Tax Competitiveness and Livability...... 31 Adding stability to tax competitiveness to build credibility and trust of private capital...... 31 Building capacity to offer relief when prevailing economic conditions demand it ...... 32 Measures Proposed by the Task Force...... 33 Working Better with Partners in Achieving Progress...... 35 Improving working relationships with a province that prefers few fiscal tools...... 35 Improving working relationships with local businesses...... 35 Measures Proposed by the Task Force...... 38 Improving Tax Efficiency for Long-Term Fiscal Sustainability...... 39 Opportunity to enhance management of City financial resources...... 39 Identifying early signals of the urgency for tax reform...... 39 Adequate consideration for the volatility impacts on taxpayers...... 39 Measures Proposed by the Task Force...... 40 Annex 1: Recommendations for COVID-19 Relief Measures...... 43 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions...... 52 Revenue Sources in Other North American Cities...... 52
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Summary of Key Messages Key Message I: Adopt an evidence-based approach to decision-making...... 17 Key Message II: Anticipate and respond to evolving economic conditions for residents and businesses...... 17 Key Message III: Identify and work to leverage the untapped revenue potential from the traditional municipal revenue sources...... 17 Key Message IV: Continue to expand the existing development and building processes to enable development activity and growth in an appropriate way by considering aggregate economic impacts...... 18 Key Message V: Continue to develop processes that yield information on the extent to which City services benefit residents and local businesses to incorporate in decisions...... 18 Key Message VI: Enhance the approach to ongoing communication with residents, businesses, and other orders of government...... 20 Key Message VII: Investigate the ability to align charging fees or recouping the cost of services with the delivery of services that arise from provincial government direction or changes...... 21 Key Message VIII: Ensure long-term, rather than short-term, fiscal arrangements are in place with other orders of government for the co-delivery or full delivery of public services...... 21 Key Message IX: Increase collaboration with regional neighbours in support of regional economic development while addressing cross-subsidization borne by The City of Calgary in favor of others in the region...... 22 Key Message X: Continuously consider guiding principles to inform execution...... 25 Key Message XI: Adopt an evidence-based approach to determining the distribution of tax responsibility between residential and non-residential classes and within each class, including the possibility of pegging the mill rate and using reserves for stabilization...... 26 Key Message XII: Make a case for remedies to address legislation that limits tools available in practice for non-residential tax relief...... 26 Key Message XIII: Anticipate, prepare and support the transition to everchanging economic realities...... 29 Key Message XIV: Develop and implement additional new economy revenue options because the transition to the new economy poses significant downside risk to some existing sources...... 29 Key Message XV: Achieve a balance between a great city in which to live and having a competitive level of taxation...... 33 Key Message XVI: Reduce tax volatility over time for individual residential and non-residential tax payers to limit the risks associated with the cost of living and doing business in Calgary...... 33 Key Message XVII: Taxation policy and its implementation ought to balance stability in the level of taxation relative to the level of service...... 33 Key Message XVIII: Extend tax rates as a potential tool for countercyclical fiscal policy...... 34 Key Message XIX: Advocate for timely legislative changes by the other orders of government...... 38 Key Message XX: Investigate the reasons for the crisis level vacancy rate in the downtown office market and respond with actions and policy changes to the regulatory environment that enhance attractiveness...... 38 Key Message XXI: Focus on long-term fiscal sustainability...... 40 Key Message XXII: Strive for a higher uptake of the tax installment payment plan to improve cash flow smoothing by changes to the customer experience including nudging...... 40 Key Message XXIII: Maintain processes that allow the annual practice of property assessments and valuation because it provides evidence that enables The City to anticipate changes...... 40 Key Message XXIV: Avoid ad-hoc decision-making and resist the urge to apply one-time mitigation measures...... 41 Key Message XXV: Revise steps in the process to ensure that the assessment roll is completed before indicative tax rates to deliver timely information to decision-makers...... 41 Key Message XXVI: Investigate a multi-year assessment smoothing for tax policy update emphasizing evidence from the 2015 to 2019 downtown tax shift for a long-term policy response...... 41
4 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Mandate, Focus and Acknowledgement
Mandate, Focus and Acknowledgement In short, the Task Force’s work tackled issues related to re- solving fiscal challenges associated with the Downtown Mandate and Responsibilities of the Task Force Tax Shift that persisted from 2015 to 2019. The purpose of the Task Force, as directed by Council, and External Members of the Task Force identified in the terms of response was to: The Chief Financial Officer (“CFO”) of The City, Carla Male, 1. Develop a strategy or strategies related to short was the Task Force Chair. External members were selected term mitigation measures, based on an application process and included: 2. Develop a strategy or strategies pertaining to po- External Task Force Member tential long-term solutions, and Heidi Conrad, CPA-CA 3. Explore new revenue options that can work to- ward improving financial resiliency for The City of JT Dhoot, AACI, CBV Calgary (The City). Dave Dunlop, CPA-CA, MBA, CFA Brian Hahn, BSME Reasons for More Focus on Funding Flows relative to Sarah Lerner, CFA, MBA Spending Discipline Annie MacInnis, MSc (Economics) While the Task Force had latitude for creative solutions Dave Mewha to address the revenue issues facing The City, their work Lindsay Tedds, PhD (Economics) explicitly excluded three areas of investigation from con- Alan Tennant, ICD.D, EMBA, FRI, CAE sideration. Rene Wells, PhD, (Finance) Specific proposals to amend the One Calgary Ser- Nizar Walji, CFA vice Plan Budgets and Plans Mike Yuzwa, CPA-CA, CBV Addressing property assessment processes or pro- cedures Members of City Administration that offered Subject Addressing the distribution of tax responsibility among taxpayer groups, which is the focus of the Matter Support Tax Shift Assessment Working Group. In addition to the external Task Force members and the These items were out of scope. Alongside the content of Chair, senior members of Administration provided sub- the mandate, they directed focus away from initiatives ject matter expertise, as required: targeted at addressing spending discipline. The primary reason for the delineation was because Subject Matter Expert Business Unit Council had similarly directed efforts at a newly commis- Henry Chan Law Department sioned initiative – the SAVE program. The SAVE program Andrew Cornick Assessment addresses spending discipline at The City specifically, and Kelly Cote Intergovernmental and there was no point in duplicating efforts. There was confi- Corporate Strategy dence that additional efficiencies would materialize from Jill Gaume Customer Service and the program because The City had achieved success find- Communications ing efficiencies of about $750M between 2015 and June 2020 through operating cost reductions and efficiencies, Chris Jacyk Finance cost containment strategies, one-time operating cost sav- Nelson Karpa Assessment ings, and utility rate reductions. Magan Lau Assessment The Mayor’s Office initiated the Cut Red Tape Program Dawn Lundquist CFO’s Office and Transforming Government initiative to support local Sheryl McMullen CFO’s Office businesses and make it easier for Calgarians to interact Michael Perkins Finance with The City. This program aimed to remove unnecessary Estella Scruggs Finance or redundant pieces of local rules and regulations that Oyinola Shyllon CFO’s Office impede local businesses and organizations from growing our economy. The City advocated for a City Charter to en- Kirk Thurbide Customer Service and able local decision-making and the flexibility needed to Communications be responsive to innovation and technology. Ivy Zhang Finance
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The Context for Funding City Operations Property Tax Property taxes are the primary source of operating fund- Sources of Operating Dollars ing for The City of Calgary and other Canadian municipal governments. Excluding the accounting entry for equity The City has limited revenue sources with which to fund in ENMAX earnings, property taxes accounted for 52 per its operations. Property taxes, determined by Council, cent of The City’s municipal operating revenue and gen- comprise the most significant single component of The erated more than $2.0 billion in funding for municipal ser- City’s total revenue sources for the operating budget. Ac- vices in 2019. For 2020, municipal property taxes would cording to the 2019 annual report, they represented 50.1 cost each household $5.88 every day for public safety per cent of operating revenue. The most substantial non- (including Police, Fire and 911 services) ($2.18), transpor- tax contribution to revenues, at 31.7 per cent, was the sale tation ($1.52), enabling services ($0.90), parks, recreation of goods and services (user fees), of which approximately and culture ($0.62) and other services ($0.66).1 52 per cent is from Water and Sewer Utilities, 14 per cent is from Public Transit, and 10 per cent is from waste dis- Figure 2: 2019 Funding for City Operations posal and recycling (Figure 4). Other funding sources in- clude franchise fees, investment income, licenses, permits Where does each dollar of revenue for City operations come from?* and fines. In 2019, The City collected $4.17 billion in total operating revenue. Investment income Federal and Sales of 5 cents Provincial (transfers/ goods and revenue sharing Table 1: services agreements) Total Consolidated City Operating Revenue for 2019 33 cents 4 cents Revenue $ (millions) % Licenses, permits and fees A Property Tax 2,088.8 50.1 Net property 3 cents B User Fees 1,323.2 31.7 taxes for Fines and penalties C Investment Income 198.9 4.8 municipal 2 cents purposes D Equity earnings in ENMAX 156.2 3.7 Miscellaneous 52 cents revenue E Government transfers 152.3 3.7 1 cent F Licenses, Permits and Fees 113.1 2.7 Source: City of Calgary 2019 Annual Report G Fines and Penalties 98.6 2.4 *Excludes equity in ENMAX earnings H Miscellaneous Revenue 40.5 1.0 Total Revenue 4,171.6 Figure 3: Link between Taxes and Services Source: City of Calgary 2019 Annual Report
Figure 1: Total Consolidated City Operating Revenue for 2019 H
F G E D C
2019 A B
Source: City of Calgary, 2020 Property Tax Brochure Source: City of Calgary 2019 Annual Report
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Property taxes are the municipal finance backbone and fees and individual subsidies. The policy, last updated in play a vital role in funding the services citizens and busi- 2012, remains the existing policy governing user fees at nesses receive from local governments. The goal is to en- The City. The policy sets out guidelines for the process, sure that the amount of tax paid reflects the cost of ser- rationale and the information needed to support the user vices received by the property owner and that municipal fees recommended by services. It requires that user fees governments’ service-level decisions are efficient. Ordi- accurately represent the value of the goods and services narily, municipal government spending to meet service to citizens. level expectations determines the taxes and typically in- According to the User Fees and Subsidy Policy (CFO010), forms the budgeting process. They are the only revenue user fees are fees that The City charges in exchange for source that The City fully controls to balance the budget. goods and services. User fee revenues represent a signifi- User Fees cant portion of The City’s total operating budget. After ex- cluding equity in ENMAX earnings, user fees represented In October 1988 Council approved the following recom- a third of City operating revenue. mendation (#78) of the Financial Planning Task Force:“That a Task Force on User Fees be created to review all charges for Figure 5: Trends in Franchise Fee Revenue City Services to ensure that, where feasible, such fees cover Energy Distribution Franchise Fee Revenue all costs (including capital debt retirement) associated with providing the services, and to determine the potential for us- $250 ing such fees to generate profit in select situations.” $200 Figure 4: 2019 Sources of User Fees $150 What are the sources of each dollar of user fee revenue? Waste disposal 10 cents $100 Real estate ENMAX Public transit 6 cents 14 cents Recreation $50 and culture ATCO 5 cents $0 Parking 2002 2006 2010 2014 2018 4 cents Source: City of Calgary 2019 Annual Report Social housing 4 cents Water and Regulatory Charges sewer Other 52 cents 3 cents Regulatory charges are an important component of mu- Protective services nicipal revenues in many cities. Alberta legislation stipu- 3 cents lates that a municipality can make a tax agreement with Source: City of Calgary 2019 Annual Report the operator of a public utility whereby instead of paying a property tax, or any other fees or charges payable to Several Task Force reports were released between 1992 the municipality, the utility may make a payment to the and 1995, resulting in report FB95-83 Revised User Fees municipality2. Depending on the Alberta jurisdiction, the Task Force Report. The recommendations within that re- charge is a franchise fee or local access fee. For Calgary, port became the first corporate-wide User Fee Policy for franchise fees are the predominant regulatory charge au- The City. thorized as a municipal revenue source in Alberta. In 2006, the Chief Financial Officer’s Department (CFOD) In Calgary, franchise fees are paid by the energy distribu- undertook a three-year corporate-wide User Fee and tion utilities in return for three main benefits: payment in Subsidy Review project based on Council direction from lieu of property taxes or charges payable to the munici- the 2006-2008 Business Plan and Budget. The review pality, use of the City’s Rights-of-Way without lease pay- resulted in a new policy, the User Fees and Subsidy Pol- ments and for the granting of a monopoly to distribute icy (CFO010), which included guiding principles on user either natural gas or electricity within Calgary.
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The utilities are permitted by the Alberta Utilities Com- Energy Corporation and the Toronto Parking Authority3. mission to recover the cost of their franchise fee payment Monetization, in this sense, considered the full or partial in the rates charged to customers. Within Calgary, they sale of these entities. At the time, The City of Toronto de- are the Local Access Fee (LAF) on electricity bills and the cided against monetizing Toronto Hydro Corporation, Municipal Consent and Access Fee (MCAF) on natural gas stating that “Toronto Hydro is a necessary instrument to bills. achieve Toronto’s environmental, economic development and financial objectives; it is not in the public interest to In Alberta, there are two ways to determine franchise sell all or any part of it.” Some governments in non-Cana- fees. As specified in the Municipal Government Act (MGA) dian jurisdictions, such as Australia, have explored asset as a tax agreement with the utilities: recycling programs to monetize existing public assets Total utility cost. The municipality collects fran- through sale or lease to the private sector, with all funds chise fees on total delivery and energy costs. It is reinvested in new infrastructure4. the method employed within Calgary. Municipal assets include land, infrastructure, buildings, The distribution charge method that is estimated billboards and signs, naming rights, and data. Recently, using the customer’s pipe or wires delivery charge. data is an asset that has come under consideration for It is the methodology most small Alberta munic- monetization. The motivation is that data-driven innova- ipalities and Edmonton use for natural gas fran- tion has become an essential source of growth. Accord- chise fees. ing to an MIT report, “There are two primary paths to data In Calgary, the franchise fee charged to utility customers monetization. The first is internal and focuses on leverag- is at a rate of 11.11%. When added to the invoice, it rep- ing data to improve a company’s operations, productivi- resents 10% of the total bill. The franchise fee rate has re- ty, and products and services, and also enable ongoing, mained unchanged since 1974. personalized dialogues with customers5. The second path is external and involves creating new revenue streams by Utility customers pay different amounts for the energy making data available to customers and partners.” 6 that they consume. Some customers are on fixed-rate contracts, while others prefer the Regulated Rate Option, Some economists have argued against monetizing data which changes every month. For the equal treatment of as an asset. The recommendation is that the government customers, the franchise fee uses the Regulated Rate Op- should collect and validate raw data for the public, act- tion as the basis for the cost of energy for all customers ing as a data supplier in the data value chain. Instead of when calculating the electricity franchise fee. monetizing data, the government should let the private sector add value to the raw data and make profits from In 2019, the franchise fees collected on electricity it7. It has led to governments around the globe increas- amounted to $142.4 million. The revenues for natural ingly adopting open data policies, from the national level gas franchise fees amounted to $51.6 million. Together, to the provincial or state level and the municipal level, in- the franchise fees from the distribution of energy totaled cluding Calgary8 9 10 11. $194.0 million in 2019. The City has two major entities that help to generate re- Proprietary Charges and Return on Investments turns, the Calgary Parking Authority (CPA) and ENMAX. Municipalities in Canada are under increasing pressure ENMAX dividends amounted to between $40 million and from a growing urban population to fund new infrastruc- $56 million between 2015 and 2019. Transfers to The City ture and public service. They rely on government trans- from CPA are in relation to Bylaw 28M2002. Through the fers as well as their own-source revenues. As the govern- Bylaw, CPA returns 65% of its net income after any net in- ment transfers become volatile and with constraints on come from Parking Control and after distribution of net the ability to increase property taxes and user fees, mu- income to managed locations as per contractual agree- nicipalities may need to explore the potential of monetiz- ments to The City. Between 2015 and 2018, the returns ing city assets. fluctuated between $12 million and $18 million. The City of Toronto is an example of a Canadian juris- The returns from both the CPA and ENMAX assets com- diction that has actively explored additional revenue by plement investment returns from The City’s investment monetizing assets. There was an evaluation in 2010 in- portfolio that consist of the underlying assets that are volving three assets – Toronto Hydro Corporation, Enwave represented by future commitments to be paid from re- serves, capital deposits, funded employee benefit obli-
8 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 The Context for Funding City Operations gations (EBOs), general operations, and other funds from per cent), contracted and general services (16.3 per cent), trusts and affiliated entities. Investment income has typ- and materials, equipment and supplies (11.4 per cent). ically fluctuated between $77 million and $105 million The remaining 11.1 per cent is for transfer payments, in recent years. The significantly higher return in 2019* interest charges, and consumption of services provided is attributable to a higher amount of realized gains as a by utilities. People costs are always an important part of result of a change in investment strategies involving the municipal operating expenses, but as a recent City of Ed- transfer of funds into a different portfolio. monton study has shown, Calgary’s full-time employee count normalized to achieve comparability across cities Figure 6: Trends in Investment Income ($M) is well below average relative to other big Canadian cities. $200 $199 Figure 8: Composition of Municipal Expenses $150 Where would each 2020 property tax dollar go? Transportation Enabling Services Bylaws and 16.4 cents $100 Public Safety (e.g. IT solutions, $105 $101 (e.g. Police, Fire, Facilities Management) $50 $79 $77 and 911 9.8 cents 23.5 cents Others (social $0 programs, 2015 2016 2017 2018 2019* environment, and Property Tax building services) Source: City of Calgary 2019 Annual Report forwarded 6.9 cents to the Figure 7: Returns from ENMAX and CPA ($M) Province Parks, recreation 36.8 cents and culture $80 ENMAX Dividends CPA Transfer (Bylaw 28M2002) 6.6 cents
$60 $18 Source: City of Calgary Approved 2020 Budget $16 $14 $16 $40 $12 Figure 9: Comparison of Municipal FTE Counts How many tax-supported FTEs per ‘000 people (2017)? $20 $56 $47 $48 $40 $50 Vancouver 15.4 FTEs $0 Edmonton 14.9 FTEs 2015 2016 2017 2018 2019
Source: City of Calgary 2019 Annual Report, Toronto 14.5 FTEs Calgary Parking Authority Annual Reports12 Average 13.4 FTEs Uses of Operating Dollars Calgary 12.4 FTEs The City’s 2020 approved budget indicates that the two Ottawa 12.2 FTEs largest applications of municipal property tax dollars are for Police, bylaw, fire and other public safety (37 per cent) Montreal 11.2 FTEs and transportation (26 per cent). When the share of these services is considered relative to total property tax col- Source: City of Edmonton Comparative Analysis lection, it falls to 23.5 and 16.4 per cent, respectively. To- gether, they represent expenditures for close to two out of every three property tax dollars received. For these and other municipal services, the three largest applications for municipal expenses are salaries, wages and benefits (61.2
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Evolution of Municipal Taxation Policy in Calgary Figure 10: Timeline and Evolution of Municipal Taxation Policy in Calgary Mill rate Alberta introduced legislation that differentials enabled business tax on occupied City introduced a split were introduced Introduction of business space and property taxes tax rate for residential between single the Market Value User fees policy on the assessed value of buildings and non-residential family and multi- Assessment (MVA) in and subsidies and other improvements properties family properties Alberta policy updates 1916 From 1974 1987 to 1997 1999 to 2020 2008 and 2012
1890 1905 1920 1935 1950 1965 1980 1990 1995 2000 2005 2010 2015 2020
1894 to 1915 1916 to 1973 1993 1994 1995 1997 2013 to 2019 2016 to 2020 Property taxes levied on All properties City faced User Fees Council Tax Review Business tax Phased Tax land values only were taxed at hard financial Task Force to direction Committee consolidation Programs the same rate decisions assemble and provided recommendations with the to provide regarding future review user fee to create a provided to Council non-residential repetitive tax policies due policies and Tax Review resulted in phasing property tax one-time to continuing and practices, Committee. out the residential to create a relief to non- structural existing fee Municipal split rate Tax Review residential adjustments in structures Government Committee property Calgary’s energy and policy Act becomes owners and related implications, law in sectors unit/cost fee Alberta relationships and subsidy practices
The Important Role of Property Taxes Practices The MGA prescribes the requirements necessary to bill and collect property taxes. Topics covered under the MGA Taxes on the assessed value of buildings and other im- include but are not limited to: provements arose in Calgary due to the events of 1913. From incorporation in 1884 through to that time, munici- Person liable to pay taxes pal revenue relied on land value taxes. Land values began Tax agreements to collapse due to a financial crisis caused by an oversup- Contents of the tax bill ply of real estate. Landowners began abandoning prop- erty as taxes sometimes exceeded the value of their land. Timing of tax bills In response, the Government of Alberta (the Province) in- Use of instalments to pay taxes troduced new legislation in 1916. In addition to the value Application of the tax payment of land, the legislation allowed taxation on the assessed value of buildings and other improvements. Penalties for unpaid taxes For the present day, the prevailing legislation is the MGA. Cancellations, reductions, refunds or deferral of It places responsibility for the collection of taxes for mu- taxes nicipal and educational purposes with municipalities. Calculation of tax rates and individual property Part 10 of the MGA encompasses provisions that enable taxes municipalities to collect property taxes and directs re- Under the MGA, the municipal council is responsible for quirements associated with all aspects of this function. setting the tax rate, calculating taxes payable, and collect- The legislation covers general provisions associated with ing taxes. With Council direction, the functional execution the collection of tax and prescribes the types of taxation of these responsibilities is delegated to Administration. mechanisms available to Alberta municipalities.
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The MGA also authorizes a legislated process that allows services and subtracts all other sources of revenue such a municipality to secure its interest in a property with as licence fees, permits, user fees and provincial grants. outstanding property taxes. City staff work collaborative- The balance is the amount to be raised through munici- ly with property owners to identify mutually satisfactory pal property taxes solutions, and provide a wide variety of supports to prop- The formula used to determine the municipal tax rate: erty owners facing financial and other challenges.
Policies Total revenue required by The City of Calgary from Provincial and Municipal Government Policy Municipal property tax = The legislative changes in 1916 also allowed The City to tax rate Total assessment levy a business tax on occupants of non-residential prop- erties (unless a machinery and equipment tax is levied on the contents of the property). In order to calculate property tax, tax rates are estab- The business tax was adopted in Calgary in 1916. In 2011, lished. The tax rate is the percentage at which each prop- Council directed Administration to provide information to erty in the municipality is taxed based on its individual consider whether business tax revenues could be consoli- assessed value. The tax rate is established by dividing the dated with non-residential property tax. In 2012, Council revenue requirement by the total assessment base for directed Administration to consolidate business tax rev- each assessment class and sub-class (if applicable). The enue into the non-residential property tax through an individual property tax contribution is then calculated by incremental transfer of business tax revenue over a sev- applying this rate to a property’s assessed value. en-year period. In addition, the total amount of business Provincial (Education) Property Tax tax revenue transferred was frozen, meaning, any annual tax rate increases would not apply to the approximately Within Alberta, education is a provincial program. Each $220 million in tax revenue that would remain frozen un- year, the Province calculates the amount that each mu- til Council makes a different decision. Consolidation of nicipality must contribute toward the education system, business tax into non-residential property tax was intend- based on the total assessed value within each assessment ed to improve the equity, efficiency and transparency of class. Calgary’s assessment and taxation system. It was also The formula used to determine the provincial tax rate: consistent with most other Canadian jurisdictions that had departed from the use of a business tax. The business Total revenue required tax was fully consolidated into the non-residential prop- by The Province from erty tax in 2019. Provincial property tax = Until 1974, residential and non-residential properties tax rate Total assessment were taxed by The City at the same rate. Differentiated tax rates for residential and non-residential properties were introduced by The City in 1974. In 1987, a differ- The Province notifies each municipality of the amount entiated rate was also introduced for single residential of education taxes they are required to collect. Once this and multi-residential properties. As an unintended con- amount is known, each municipality then establishes sequence, this resulted in property owners converting property tax rates to bill and collect the local education multi-residential buildings into condominiums to bene- amount. This tax rate is calculated by dividing the re- fit from the reduced applicable tax rate. In response, The quired amount of local education tax by the municipali- City began phasing out the split residential rate in 1998 ty’s total taxable assessment base within each assessment and completed the phase-out in 2000. class. The individual education property tax contribution is then calculated by applying this rate to a property’s as- Processes sessed value. Education property tax revenues collected Municipal Property Tax by the municipality are remitted to the Province. Each year, City Council approves the budget needed to support City services. To determine the revenue required from property taxes, The City takes the overall expense of
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Priorities in the transfer of a large portion of the tax responsibility Property Tax Relief previously carried by downtown office buildings to oth- er non-residential properties located outside the down- While the majority of Calgarians continue to give The City town. a “good value” rating in the value of their property tax dol- lars, there have been signs of increasing tax resistance in Beginning in 2017, and continuing in 2018, 2019 and recent years. Calgarians have also been fairly evenly split 2020, Council recognized that the tax shift negatively im- over supporting tax increases to maintain or expand ser- pacted many non-residential property owners and asso- vices versus supporting service cuts to maintain or reduce ciated tenants outside of downtown as a large amount of services. In recent citizen surveys, and starting in 2016, non-residential tax responsibility shifted from downtown alongside the 2015-16 recession, there was a noticeable properties to non-downtown properties. Council provid- decline in the preference for tax increases to accommo- ed direction to Administration to develop property tax date the same level of service. In acknowledgement of relief for non-residential property owners to address the this growing taxpayer sentiment, in recent years, Council redistributive effect of decreasing assessed values in the has directed Administration to offer various forms of tem- downtown core. The response was a Phased Tax Program porary tax relief. (PTP) that helped address tax shifts from disproportional market value changes by limiting increases to the munic- Figure 11: Citizen Feedback on Taxes and Services ipal portion of the non-residential property tax. This ap- proach is enabled by a provision in the MGA that enables Tracking: Increase Taxes vs. Cut Services a council to phase in a tax increase or decrease resulting Increase Taxes to Maintain or Expand Services 59% 59% 60% Cut Services to Maintain or Reduce Taxes from the preparation of any new assessment. 61% In 2019, Council also directed Administration to research 59% 53% 52% a small business relief program rather than rely on a 55% 50% 50% 49% 48% 48% 48% phased tax program (which is considered a blunt tool in providing direct and targeted relief to small businesses). 46% 47% 48% 45% 45% However, such a program was determined not to be feasi- 43% 44% 37% 36% 41% ble and was not implemented. 34% 35% 32% 33% S = Spring F = Fall Since 2017, Council has approved funding for PTP of $213 million, and approximately $174 million in credits have been issued to provide tax relief to non-residential prop- 2010 2012 2014 2016 S F S F S F S 2017 2018 2019 2020 erty owners over the last three years. Council recently Source: City of Calgary 2020 Spring Pulse Survey Final Report approved PTP for 2020, with another approximately $30 million identified to provide non-residential property tax Property Tax Rebates relief. In 2014, 2017 and 2020, Calgary City Council approved the Compassionate Property Tax Penalty Relief use of one-time rebates to mitigate property tax increases In late 2017, Council provided direction for Administra- for both residential and non-residential property owners. tion to investigate tax forgiveness programs to provide These rebates were funded using existing reserves and/ some financial relief for those property owners unable to or tax room, which is generated when the Province’s edu- meet their property tax obligations due to a significant cation tax requisition is lower than The City expected. The life event. In response to this direction, Administration use of rebates is enabled by the MGA and allows a council proposed the Compassionate Property Tax Penalty Relief to cancel or refund all or a part of a tax with respect to a Program. This program provides forgiveness of a certain property or class of properties if the council considers it number of property tax penalties for those taxpayers who equitable to do so. suffered a critical life event, such as a death or illness, and Phased Tax Program which impacted their ability to pay their property taxes The recent economic downturn in Alberta resulted in by prescribed deadlines. Under this Council approved very sharp and very rapid declines in the market value program, approximately $8,000 in penalties have been of office properties in Calgary while the value of other forgiven for approximately 40 taxpayers. non-residential properties remained stable. This resulted
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Textbox 1: CRL in the Rivers District. It segregates a portion of the Existing Taxation Authority Outside Property Taxes property tax revenue generated within the district for the direct investment in infrastructure improvements Through their discretionary authority under the MGA, within the area. municipalities may choose to generate revenue through Special Tax – a council may pass a bylaw to impose a other forms of tax. These are described briefly below. tax to pay for a specific service or purpose such as wa- Business Tax – a council may pass a bylaw to impose terworks, sewers, boulevards, dust treatment, paving, a tax that is payable by the person who operates the drainage ditches or recreational services. Several Cal- business, not the property owner. This form of tax was gary communities benefit from a special tax as a result used in Calgary from 1916 to 2019. It is an occupancy of a successful community petition to The City of Cal- tax levied directly against the owner of a business. There gary requesting enhanced landscape and boulevard are two main features. First, the basis is the expected in- maintenance. come of a business, not the wealth of landlords. Because Well Drilling Equipment Tax – a council may pass a by- rents consider business location, opportunities and law to impose a tax in respect of equipment used to drill expected revenues, among other factors, they provide a well for which a license is required under the Oil and a reasonable measure of potential business incomes. Gas Conservation Act. Second, it allows quasi-public exemptions that reflect prevailing economic circumstances through vacancy Local Improvement Tax – a council may pass a bylaw adjustments. Winnipeg is the last large Canadian City to to impose a tax on a specific area within a municipality have a business tax. to fund a service or improvement applied to a particu- lar area only, such as street paving, driveway crossings, Business Improvement Area (BIA) Tax – a council may sidewalk replacement, lane paving and curb and gutter pass a bylaw to impose a tax levied and collected by a replacement. Local improvement taxes are paid by cer- municipality on behalf of business owners who wish tain Calgary property owners for projects that Council to improve the area in which they do business. Calgary considers to be of greater benefit to a specific part of a currently has fifteen BIAs. Studies have shown that BIA community rather than to the whole city. organizations can be a catalyst for recovery. Community Aggregate Payment Levy – a council may Community Revitalization (CRL) Levy – a council may pass a bylaw to impose a tax in respect of all sand and pass a bylaw to impose a property tax that allows munic- gravel businesses operating in the municipality to raise ipalities to borrow against future property tax revenues revenue to be used toward the payment of infrastruc- to help pay for infrastructure required to spur new de- ture and other costs in the municipality. velopment in a specific area. Calgary currently has one
Using Property Assessments to Inform Property Taxation value. Market value is often regarded as “the most fair and equitable means of assessing property” and is the Practices prevailing assessment standard throughout Canada.15 As Before 1995, the valuation approach used in Alberta was part of the 1995 revisions, assessments were to be pre- fair actual value.13 Assessments were prepared by adding pared annually, not every eight years. The valuation date the estimated market value of a property’s land to a pro- was July 1 of the year preceding the tax year, and the physical condition of the property was to be assessed as vincially regulated value for any building or structure on 16 the property. The exception was farmland, which was as- of December 31 of the year preceding the tax year. The sessed by applying regulated rates. Also, property assess- 1999 tax year was the first assessment roll prepared using ments were prepared every eight years. One prevalent market value. There is an exception to the market value criticism of the eight-year assessment cycle was the large standard in Alberta for “regulated property.” Specifically, tax shifts that would occur in each reassessment year.14 land based on agricultural use (i.e. farmland), machinery and equipment, and designated industrial property (as Policies defined in the legislation, including linear property).17 18 These property types are subject to regulated valuation When the MGA was instated in 1995, the property assess- standards pursuant to the Minister’s Guidelines.19 ment standard changed from fair actual value to market
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Processes a complaint disagrees with the decision of the ARB, they The province plays a large role in overseeing the munici- may seek review by the court. pal administration of assessment to ensure that it meets Figure 13: Residential Assessment Complaints minimum standards. The legislation permits the prov- ince to engage in an annual audit program as well as a Residential Property Complaints 20 detailed audit program. The annual audit program an- 9,000 Number of Complaints (Left) 6% alyzes ratio studies, effectively an analysis of sale prices Proportion of Base Under Complaint (Right) to assessments within a region, while the detailed audit 7,500 5% program involves a much more rigorous analysis.21 Both annual and detailed audits are administered in accor- 6,000 4% dance with the Minister’s Guidelines.22 Prior to declaring an assessment roll, each municipality within Alberta must 4,500 3% meet the quality standards of the annual audit program. 3,000 2% Additionally, The City undergoes a detailed annual audit for its residential properties and ad hoc detailed audits for 1,500 1% its non-residential properties.23 Most recently, Calgary’s industrial properties underwent a detailed audit for the 0 0% 2020 tax year. 2000 2005 2010 2015 2020 Figure 12: Non-Residential Assessment Complaints Source: City of Calgary Assessment Business Unit
Non-Residential Property Complaints Priorities
5,000 Number of Complaints (Left) 100% Alberta’s individual municipalities are tasked with the ad- Proportion of Base Under Complaint (Right) ministration of property assessment for most properties.28 4,000 80% The exception to this is designated industrial property, which the Province is responsible for preparing.29 In con- 3,000 60% trast, some Canadian provinces designate one centralized body to prepare assessments regardless of the municipal- ity in which the property resides. For example, in Ontario, 2,000 40% the Municipal Property Assessment Corporation (MPAC) prepares assessments; in British Columbia, BC Assessment 1,000 20% prepares assessments. Within jurisdictions with a central- ized assessment body, the cost of preparing assessments 0 0% within a municipality is generally paid by the municipal- 2000 2005 2010 2015 2020 ity. For example, in Ontario the cost to a municipality for Source: City of Calgary Assessment Business Unit providing assessments is based on both the number and In addition to quality standards and audit, an indepen- value of assessments as a proportion of the total within dent quasi-judicial body called the Assessment Review the Province. Board (ARB) also plays a role in overseeing the adminis- tration of assessment.24 The ARB complaint process allows property owners to raise an issue with their assessment.25 The board adjudicates the issues and renders a decision pursuant to the legislation.26 During the economic boom of 2006-2008, over 80 per cent of the taxable non-res- idential assessment base was under complaint. By the 2020 tax year, the volume had fallen 63 per cent. Also, the MGA permits the judicial review of board decisions by the Court of Queen’s Bench, acting as another supervisory body over the administration of property assessment.27 Assessment matters are highly regulated by legislation and can often be technically complex. If either party to
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Responding to Calgary’s Cyclical Economy using grow. By 2018, the disparity between supply and demand Existing Tools resulted in approximately 11 million square feet of va- cant space. This resulted in downward pressure on rental Increasing focus on evidence and monitoring rates, which sometimes resulted in free rent, as property owners attempted to alleviate the operating cost of their A substantial decline in oil prices, which started in Q2 property. As the income production of these assets plum- 2014, caused Alberta to enter a recession that has had a meted, so did their market value. The property assess- prolonged impact on Calgary’s local economy. Amongst ment of downtown offices fell consistently from tax years other things, this contributed to a 19-quarter decline in 2016 to 2019, eventually resulting in a decline in munici- the demand for downtown office space. In 2007, Calgary pal property tax revenue collected from these properties had amongst the lowest vacancy rate and highest rent by a total of over $250 million. for office space within downtown. Strong demand led to Over the same period, the market value of other sectors a period of rapid supply growth. From 2007 to 2014, the of the non-residential assessment class, such as retail and supply of downtown office space increased by approxi- industrial, performed relatively well. The isolated, stark mately 28 per cent. drop in the value of downtown office values resulted in the redistribution of non-residential tax responsibility to Figure 14:Demand Demand/ and Supply Supply for Downtown for Office Downtown Space (in Millions Office of sq. ft) Telus Sky was expected to add about 760,000 sq ft in Q2 2020 Total Supply Total Demand 9 suburban areas. Brookfield Place Calgary - East Tower 8 45 707 5th Street SW 7 634 6th Avenue SW, Calgary City Centre, Eau Claire Tower 6 43 Enhancing practices and processes that use existing 718 - 8 Avenue SW, Eighth Avenue Place - West Tower 5 41 The Bow - North Block 4 revenue authority Le Germain Calgary, Eighth Avenue Place - East Tower 3 39 8 West, Bankers Court, 2 Centennial Place - East & West Tower, Calgary residents and businesses expect The City to sup- 37 Jamieson Place, Penn West Plaza port and not disrupt market forces for residential and Mancal Properties, Centrium Place, 1 35 Plains Midstream Plaza, non-residential property development activity. This de- Livingston Place South & West Towers, PennWest Plaza - East Tower 33 sire can sometimes unintentionally contribute to the oversupply situation in certain real estate markets over 31 certain periods. The downtown tax shift from 2015 to 29 2019 that led to higher taxes for non-residential prop- 27 erties outside the downtown core was triggered by an Q3 Q3 Q3 Q3 Q3 Q3 Q3 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 2001Sep-01 Sep-02 Sep-03 2004Sep-04 Sep-05 Sep-06 2007Sep-07 Sep-08 Sep-09 2010Sep-10 Sep-11 Sep-12 2013Sep-13 Sep-14 Sep-15 2016Sep-16 Sep-17 Sep-18 2019Sep-19 overbuild in the downtown non-residential office mar- Source: Altus Insite ket. However, taxpayers expect relief from municipal au- thorities when these situations occur. A more sustainable Figure 15: Magnitude of the Downtown Tax Shift path would suggest that The City secure some protection against these situations. Additional processes would af- $500M Downtown Tax Redistributed Tax ford The City the ability to respond to market failures and imbalances in a highly cyclical economy. $400M $54M Economic shocks in the past, such as the Great Recession $300M $77M in 2009, have resulted in short-term re-distribution, as $257M $50M quick economic recovery restored a balance. Short-term $200M $75M relief for non-residential taxpayers experiencing signifi- cant tax responsibility increases occurred through a one- $100M time Phased Tax Program (PTP) for the 2017 tax year.30 As $0M re-distribution continued to occur, additional one-time 2015 2016 2017 2018 2019 Total PTPs were offered in 2018, 2019 and 2020.
Source: City of Calgary Assessment Business Unit In 2019, Calgary City Council recognized the downtown tax shift had become a long-term issue and thus the need As oil prices and demand for office space in the ener- to provide sustainable relief for non-residential taxpay- gy-sector driven downtown began falling, in-flight con- ers. They created two teams with different mandates to struction projects completed, and supply continued to help discover solutions. The Tax Shift Assessment Work-
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ing Group was to explore greater tax parity between the to help support Calgary’s business community. Similarly, residential and non-residential tax classes. As a result of the Financial Task Force identified the need to enhance that work, the distribution of tax requisition changed to practices and processes using existing authorities. 52 per cent residential and 48 per cent non-residential
Textbox 2: Figure 16: Assessment Complaints for Hearing Independent Review of Non-Residential Assessments Proportion of Non-Residential (NR) Complaints that and Complaints Proceeded to Hearing 2,400 NR Complaints Resolved without Hearing Leading up to 2017, property owners and their various NR Complaints that Proceeded to Hearing 427 representatives raised concerns with respect to the fair- 1,800 ness, transparency and predictability of The City of Cal- gary’s non-residential assessment process, particularly 1,298 1,200 as it related to the annual preparation of assessments 1,731 where “every year is a new [valuation] year.”31 As a result 1,920 of these concerns, a Notice of Motion was put forward 600 in 2017 September, calling for an independent review of 820 non-residential assessment and complaints.32 0 318 2017 2018 2019 Heuristic Consulting Associates (HCA) conducted an independent review. HCA engaged various stakehold- Source: City of Calgary Assessment Business Unit ers (internal and external to The City) and produced a comprehensive report reviewing multiple issues on the Figure 17: Magnitude of Tax under Complaint assessment complaint process in Calgary, including but not limited to the culture, communication, and dispute Proportion of Municipal Property Tax Under Complaint resolution. More specifically, stakeholders appeared 80% Residential Non-residential to be frustrated with a current state they described as, among other things, unpredictable, adversarial and 60% lacking the opportunity for valuable dialogue and nego- tiation.33 The recommended “preferred future state” by HCA was trust, respect, transparency, collaboration and 40% dialogue, and allowing for increased trust and stability in the system. 20% The City took immediate action towards implementing many of the recommendations of the report. Most no- 0% 2000 2005 2010 2015 2020 tably, the Assessment business unit has taken a more collaborative approach with the property owner and Source: City of Calgary Assessment Business Unit agent community in the preparation of assessments and throughout the complaint process for the pur- Since 2017, the proportion of the non-residential tax- poses of efficient dispute resolution and relationship able assessment base agreed to during Pre-Roll has in- management. For example, in 2017, only 18 per cent of creased from 2 per cent to 33 per cent and the propor- complaints were resolved prior to a hearing. In 2019, 84 tion under complaint to the ARB has dropped from 64 per cent of complaints were resolved amicably prior to per cent to 32 per cent. a hearing – more than four times as many resolutions as 2017.
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Measures Proposed by the Task Force Key Message II: Anticipate and respond to evolving economic conditions for residents and businesses Following their review, the Task Force responded to the preliminary measures adopted by The City by deliver- Recommendation #4: Establish annual reporting, includ- ing the following additional recommendations to better ing for public information, that reflects evolving economic shape future property tax decisions. conditions faced by Calgary residents and businesses. The goal is to generate evidence that would anchor decisions for To address the need for increased focus on evidence and a cyclical economy. Be responsive to economic conditions monitoring, the Task Force recommended: and taxpayer expectations in a meaningful manner. The ele- Key Message I: Adopt an evidence-based approach to ments in the periodic reporting would include: decision-making Monitor – List prevailing stresses and shocks on the Recommendation #1: Apply a decision-making framework local economy and the transmission mechanism to that addresses forces within the control of The City. Adding property taxes to minimize the impact of sudden elements that are subject to the decision of the other orders shocks. of government limits execution capacity. Commit to a pro- Anticipate – Limit uncertainty by predicting fu- cess based on two features: ture-year changes in the taxable assessment base Purposefully find the ‘best available’ evidence on using correlations with economic activity. ▶▶ Revenues and taxes required for municipal ser- Sustain – Improve reliance on the non-property tax vices. revenue by limiting its volatility and increasing its growth before exploring ofsetting property tax mea- ▶▶ Affordability of revenues and taxes collected by sures for shifts. residents and businesses. Segment – Measure annual changes in property tax ▶▶ Sustainability and long-term impact of revenue dollars charged to residents and businesses across and tax collected on the economy. the distribution of taxpayers (i.e. not just mean or ▶▶ Emerging trends having the potential to impact median). revenue and taxes. Respond – Report on the distribution of the tax re- Critically evaluate the validity and generalization of sponsibility across subgroups of residential and the evidence before decisions. non-residential taxpayers to better support timely responses. Recommendation #2: Develop and sustain the credibility of the decision-making process by: To address the need to improve practices and processes that use existing revenue authority, the Task Force recom- Committing to a principles-based process for adjust- mended: ing municipal property taxes with strong account- ability and ownership. Key Message III: Identify and work to leverage the un- tapped revenue potential from the traditional munic- Delivering analysis, in everyday language, of the up- ipal revenue sources coming year’s property tax challenges ahead of the tax rate decisions for adequate reflection. Recommendation #21: Work with The City of Calgary’s Eco- nomic Resilience Task Force to assess the extent to which The Communicate, using standardized terms, the evolu- City of Calgary has fully explored revenue from existing au- tion of drivers of change and their fiscal impact be- thorities. Address the speculation that The City is not using fore decision-making. revenue authorities to full efect. Undertake a comprehen- Recommendation #3: Improve certainty and predictability sive review and gap analysis on the use of traditional reve- around property taxation in Calgary. nue sources. The review should consider legislative changes As economic agents, residents and businesses must required to acquire authority (if applicable) and administra- be provided with certainty and predictability to tive practices that need changing for execution. The tools to make timely and well-advised decisions. They would consider include but are not limited to: benefit provided the plan is clear, and the commit- Return on Assets and Investments/ Proprietary ment sustained over time, reducing business risks. Charges Consider overall budgetary changes that adapt to ▶▶ Develop and implement additional revenue from the impact of inflation and population growth. a strategic review of the business activities, pro-
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prietary charges and dividend policies of munic- Key Message IV: Continue to expand the existing de- ipal corporations, such as ENMAX, Calgary Park- velopment and building processes to enable devel- ing Authority. opment activity and growth in an appropriate way by considering aggregate economic impacts ▶▶ Develop and implement the generation of recur- ring fees from the use of City assets and the one- Recommendation #24: time sale of excess capacity or assets (e.g. land Anticipate and monitor changes in the evolving resi- that is not used or required). dential and non-residential real estate markets while ▶▶ Develop and implement the generation of returns supporting private market activity. from a public-private partnership for non-essen- Continue to expand the existing development and tial services, e.g. golf courses. building processes to: ▶▶ Invite proposals from members of the public and ▶▶ Enable development activity and growth in an firms that would generate ideas to tap the un- appropriate way. used potential. ▶▶ Support economic development and maintain Regulatory Charges employment and business growth. ▶ Explore the use of regulatory charges, like ‘fran- ▶ ▶▶ Ensure adjustments to economic conditions and chise fees’ or ‘local access fees’ for services provid- the aggregate impact on the economy. ed in the City of Calgary which do not otherwise pay property tax (e.g. telecommunications infra- ▶▶ Moving forward, to the extent possible, favour structure). the occupation of the empty office spaces in downtown Calgary. ▶▶ Advertisement charges that include billboards and digital ads targeted in Calgary. Monitor key economic indicators for the City of Cal- gary. As we transition to the new economy, the fore- ▶▶ Develop and implement licensing charges for casts should support The City’s approval process and business vehicles. It provides an opportunity for track the level of reliance on diferent sub-groups in targeted relief when required for businesses. the tax base. ▶▶ Develop and implement the extension of busi- Assess the cumulative impact of approval decisions ness licensing requirements to a wide variety of rather than individual decisions, and work to share home-based businesses. the information with individual applicants to inform User Fees their decision-making. ▶▶ Apply total cost for municipal services comple- Key Message V: Continue to develop processes that mented with Calgary resident discounts for cer- yield information on the extent to which City services tain services (e.g. park and ride) to achieve difer- benefit residents and local businesses to incorporate ential user fees. in decisions. ▶▶ Develop and implement the sale of memberships Recommendation #30: Incorporate the information gener- and long-term subscriptions for access to a wide ated from the process changes into a future review of user range of services, e.g. golf courses. levies. ▶▶ Charges for the use of proprietary assets, e.g. Existing processes for determining user levies already data. incorporate the distinction between private and soci- etal costs. The practice of focusing on the recovery of ▶▶ Deliver non-essential services only if the costs are private costs for services would continue to apply to fully recoverable through user fees. city residents and businesses. Taxes Consider the addition of societal costs for services ▶▶ Develop and implement taxes that would focus to non-residents without discouraging non-Calgari- on tourists and visitors that use City services. ans from increasing economic activity through their spending in Calgary. ▶▶ Seek agreement with the province to share reve- nue generated during “boom” years for a rainy- day fund to mirror the heritage fund. 18 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Improving the Understanding of Municipal Finance Circumstances
Improving the Understanding of Municipal Finance the federal government and the provincial or territorial Circumstances governments about the existence of a vertical fiscal im- balance. Achieving a Better Understanding of the Property Tax Bill A federal Subcommittee on Fiscal Imbalance was estab- lished in 2004 to study the problem of fiscal imbalance Calgary residents and businesses need to understand and to propose tangible solutions for addressing it. Ac- better the relationship between the taxes paid and ser- cording to the Committee, “a vertical fiscal imbalance ex- vices received. The goal is sustaining and extending the ists when the fiscal capacity of one order of government progress achieved with the introduction of tools in recent is insufficient to sustain its spending responsibilities years. There is still a lack of clarity in the minds of the pub- while the fiscal capacity of another order of government lic on some items. Examples are the distinction between is greater than is needed to sustain its spending obliga- municipal and provincial services as well as the differenc- tions, while both orders of government provide public es in services provided by The City of Calgary vis-à-vis services to the same taxpayer.”35 other big cities. As well, Calgary taxpayers desire a better understanding of the link and balance between the level Over the last two decades, the extent of the imbalance of taxes and the level of services. was unfavourable at the municipal level. Local govern- ments in Canada, mainly municipalities, spend 91 to 92 Over the years, The City applied two main tools to edu- per cent of their expenditures on goods and services and cate and inform property owners about property taxes. are the direct providers of most services to citizens. It The first tool is a property tax brochure that accompanies compares to 23 to 25 per cent for the federal government the property tax bill. The Task Force acknowledged that and 61 to 62 per cent for provincial governments. Munic- the content and clarity afforded through the brochure ipalities take care of parks, parking, libraries, roadways, has improved with time. The second tool is online con- local police, local land use, fire protection, public trans- tent available through The City webpages that provides portation, and community water systems to provide the information on the property taxation system. quality of life their citizens enjoy. Despite these tools, the Task Force identified that un- Canadian municipalities do not have sufficient and diver- derstanding Calgary’s property taxation system remains sified own-source revenues.36 It makes it challenging to challenging and outlined the need for additional com- fund their expenditure responsibilities (or own-source ex- munity education efforts. The goal would be to achieve penditures), some of which were transferred from the se- a better relationship between the taxation authority and nior governments.37 Without government transfers from taxpayers. References were drawn to the use of addition- the federal and provincial governments, municipalities al tools, like videos in other jurisdictions, to supplement in Canada would run deficits (expenditures would ex- brochures and online tools. ceed revenues) resulting in net borrowing fiscal positions which have increased in recent years.38 Because munici- Responding to an Increasing Municipal Fiscal Imbalance palities are unable to run deficits, they typically increase Canada’s three levels of government – federal, provincial property taxes or decrease expenditures as adjustments. or territorial, and municipal have different responsibilities Figure 18: Own-source Government Revenue ($B) and associated costs. To pay for those expenditures, they rely on various taxes and revenue sources. The Constitu- $1,000B Local Governments Local School Boards tion of Canada assigns revenue sources and expenditure Federal Government Provincial Governments $866 $904 $816 responsibilities to the federal and provincial or territorial $800B All General Governments $769 $795 $732 $94 $679 $702 $91 governments. It also gives the provinces exclusive con- $636 $646 $621 $639 $84 $87 $600B $77 $80 trol over municipalities. Municipalities are the creatures $71 $74 $57 $61 $64 $68 of their provinces, so they can only access the revenue $400B sources their provincial governments grant to them. The provinces can, take away or change any municipal power $200B previously granted. $0B For many years, the distribution of revenues and expen- 2008 2010 2012 2014 2016 2018 ditures has not been balanced among the three levels of government. There has been extensive debate between Source: Statistics Canada
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Figure 19: Own-Source Government Expenditures ($B) Measures Proposed by the Task Force $1,000B Local Governments Local School Boards To address the need for a better understanding of the Federal Government Provincial Governments $856 $897 property tax bill, the Task Force recommended: All General Governments $789 $816 $800B $748 $762 $688 $717 $730 Key Message VI: Enhance the approach to ongoing $628 $659 $106 $591 $96 $101 communication with residents, businesses, and other $600B $86 $89 $93 $77 $81 $83 $68 $73 orders of government $400B $62 Recommendation #23: Make changes to the content and $200B form of communication with members of the public and other orders of government so that there is a better under- $0B standing of eforts at: 2008 2010 2012 2014 2016 2018 Education Support Source: Statistics Canada ▶▶ Simplify property taxation and municipal fi- The federal and provincial governments have a variety nance communication using plain language. of tax and revenue sources, including those like taxes on While certain concepts and terms may be tools of personal and business income that increase when there the trade, they are less meaningful to taxpayers, is economic growth. Unlike municipal governments that e.g. a 3% property tax increase does not translate have to adjust property tax rates regularly, provincial and into 3 % increases for individual taxpayers. federal income tax rates remain unchanged but yet yield ▶ Make the distinction between operating and automatic tax revenue increases with increases in the ▶ capital budgets more transparent. Consider the nominal values of income and sales. Despite the availabil- use of terms that make sense to the public, e.g. ity of multiple sources and the ability to create new ones, using ‘investments’ for ‘capital.’ like the cannabis sales tax introduced in 2016, the Alberta provincial government extended only temporary bene- ▶▶ Actively address misinformation on municipal fits from the creation of fiscal space to municipalities. The finances. Letting them linger without correction Province introduced a temporary, two-year Municipal adds to the confusion. Cannabis Transition Program and announced in 2019 that Cost-efectiveness it would not continue. ▶▶ Communicate initiatives underway to reduce To resolve fiscal imbalance, The City has explored advo- municipal government costs, such as the Solu- cacy alongside the Federation of Canadian Municipalities tions for Achieving Value and Excellence (SAVE) (FCM) to improve municipal finance in Canada. FCM is program. a national advocacy group founded in 1901. Its current members include over 2,000 Canadian municipalities of Demonstrating value all sizes, representing more than 90 per cent of all Cana- ▶▶ Include the variety of services the municipality dians. provides and draw a better link between the level One of its successes was to work with the federal gov- of public consumption of municipal services and ernment to create the Federal Gas Tax Fund (GTF) to fund the property taxes paid. crucial municipal infrastructure. The GTF is a permanent Transparency and stability source of funding flowing annually through provinces ▶▶ Transparency – Affirm the recommendations of and territories to their municipalities to support local the Tax Shift Assessment Working Group. Contin- infrastructure priorities, providing municipalities with ue to improve transparency about how tax dol- over $2 billion per year for infrastructure investments. lars are deployed, starting with clarity about the However, just like Canadian municipalities working in- provincial and municipal split. dependently, FCM has been less successful at indicating that the property tax as the primary municipal tax is not ▶▶ Stability – Work with the province to minimize designed to fund a broad range of municipal services. volatility created by changes in provincial prop- erty requisitions that impact aggregate property tax payments.
20 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Improving the Understanding of Municipal Finance Circumstances
To address the need to respond to an increasing munici- pal fiscal imbalance, the Task Force recommended: Key Message VII: Investigate the ability to align charging fees or recouping the cost of services with the delivery of services that arise from provincial gov- ernment direction or changes Recommendation #13: Collaborate with the province to au- thorize access to tools that address services that arise from provincial government direction or changes. Identify services that may have been directed to The City explicitly or inadvertently. The inadvertent transfer of responsibility occurs when third parties are no longer able or willing to de- liver the services, but The City steps in for continuity as the last resort government service provider. These services have value for those who access them. Ensuring continuity, as well as adequate funding for those services, is vital. Use the results from the review to engage in a dia- logue with the province. Collaborate to determine and agree on the fiscal tools necessary to allow ef- fective delivery of those services by the municipality. Key Message VIII: Ensure long-term, rather than short- term, fiscal arrangements are in place with other or- ders of government for the co-delivery or full delivery of public services Recommendation #14: Establish long-lasting revenue and cost-sharing arrangements with other orders of government whenever new municipal services are directed by other or- ders of government. The introduction of new services on a permanent basis, which adds incremental costs, should be accompanied by new revenue tools. Costs for new, perma- nent programs, like the recent introduction of the municipal cannabis program, should be accompanied by permanent, not temporary, municipal revenue tools. Failing which Cal- gary should pursue exemptions from implementation to achieve fiscal sustainability.
Financial Task Force | Report and Recommendations 21 C2020-0742 ATTACHMENT 3 Supporting Regional Economic Development
Supporting Regional Economic Development to The City nor contribute to per capita funding arrange- ments. However, regional residents may be using various City-Shaping and Building in a Regional Context services provided by The City, such as transit, recreation, parks, and roads. There is concern that this is resulting in The City marked a significant shift in city-shaping through an “inadvertent subsidization” of regional growth. This is the 2009 Municipal Development Plan. The City sought to particularly true of development immediately on our mu- balance new community growth with intensification. At nicipal boundary. A recent Municipal Government Board the same time, as The City’s policies changed, an econom- decision supported The City’s position that development ic boom brought further growth pressure to the region of the OMNI Area Structure Plan within Rocky View Coun- resulting in high levels of growth in other municipalities ty could result in an estimated $60 million of transporta- in the region and on Calgary’s boundaries. tion network upgrades necessitated within Calgary. Municipalities in the Calgary region have been some of the fastest-growing in Canada. Calgary’s share of the re- Measures Proposed by the Task Force gion’s population has slowly declined from 91 per cent To address city-shaping and building in a regional con- in 1986 to 85 per cent by 2018. At present, there are ap- text, the Task Force recommended: proximately 246,000 people who reside in municipalities outside Calgary. By 2076 that number is forecast to more Key Message V: Continue to develop processes that than double to almost 600,000. Calgary’s share of single yield information on the extent to which City services and semi-detached housing starts has declined from 80 benefit residents and local businesses to incorporate per cent in 2003 to 69 per cent in 2018. Employment data in decisions. indicates a level of stability, with 2016 data showing that Recommendation #29: Use the information to better un- 87 per cent of regional jobs are in Calgary. Calgary has derstand the level of support The City afords visitors and maintained a majority share of regional jobs since 2001, residents in the region. Incorporate the findings into the de- the specific percentage of regional jobs located in Cal- cision-making process for cost-sharing arrangements with gary has declined slightly from 90 per cent in 2001. regional partners. Comparative data on industrial land absorption illustrates To address the impact of activity in the region on The significant volatility over the past five years as Calgary City’s financial position, the Task Force recommended: absorbed a high of 76 per cent of the region’s industrial development in 2015 and dropped significantly to 37 per Key Message IX: Increase collaboration with regional cent in 2016 (average absorption from 2014-2018 was 68 neighbours in support of regional economic develop- per cent). ment while addressing cross-subsidization borne by The City of Calgary in favor of others in the region. The Calgary Metropolitan Region Board (CMRB) came into effect on 2018 January 1. The CMRB Regulation es- Recommendation #15: Work with intermunicipal neigh- tablished membership, voting structure, and the require- bours on coordinated actions to support regional economic ments that a Growth Plan and Servicing Plan be complet- development. Seeking synergies in service provision and pri- ed by 2021 January 1. Since the CMRB has been in effect, oritizing economic development at the Calgary Metropoli- the CMRB Board has adopted an Interim Growth Plan and tan Region Board. Investigate municipal governance struc- Interim Regional Evaluation Framework. Both received tures that promote the cost-efective delivery of services for approval from the Minister of Municipal Affairs via a Min- regional economic benefit. isterial Order in 2018 December. Recommendation #16: Investigate cross-subsidization for non-Calgary residents and businesses in the Calgary region Assessing the Impact of Activity in the Region on The that benefit from City services for potential cost-sharing. In- City’s Financial Position vestigate new revenue opportunities that address cross-sub- sidization borne by The City of Calgary in favour of others in As the Calgary Region continues to grow and the num- the region, including: ber of residents and businesses locating outside of Cal- gary’s boundary continues to grow, it is becoming more Cost-Sharing Agreements – with regional partner important to understand the impact of these trends on municipalities. They can be applied to recover costs The City’s financial situation. Residents and businesses for shared services and shared use of infrastructure. living outside of Calgary do not contribute tax revenues
22 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Supporting Regional Economic Development
Sharing property tax revenue – with neighbouring municipalities. An example is the use of Joint Eco- nomic Development Initiatives (JEDI) type agree- ments. Diferential User Fees – to recover subsidies to region- al users of City services. Collaboration Agreements – where Calgary and re- gional partner municipalities work together on ap- plications for infrastructure funding from other levels of government. Recommendation #17: Ensure that the investments made by The City that support regional growth do not decrease Cal- gary’s competitiveness. Investigate measures to reduce costs borne by The City from regional growth, including: Recovering the cost of growth – by working with in- termunicipal neighbours to establish of-site levy/ levies to be imposed on an intermunicipal basis. Cross-corporate regional servicing – where service provision by The City to the region is synchronized to minimize costs and achieve positive cross-corporate cost/benefit. Targeted annexations – by ensuring that future an- nexations will provide for the best possible cost/ben- efit outcomes for The City.
Financial Task Force | Report and Recommendations 23 C2020-0742 ATTACHMENT 3 Bringing Property Taxation into the Twenty-First Century
Bringing Property Taxation into the Twenty-First Leading up to 2015, the demand for Calgary office space Century was very high, particularly within the Centre City area. At the time, Calgary had some of the highest rental rates and Reducing Reliance on a Land and Property-based lowest vacancy in Canada. As a result, real estate devel- opers responded by steadily increasing supply.39 The sud- Approach to Taxation den and sharp oil-induced economic downturn caused Revenue sources for Canadian municipalities are limited. the demand for office space to fall drastically, leading to a The primary source of revenue includes residential and large disparity between still growing supply and sudden- non-residential property taxes. Transitions in the eco- ly low demand. This disparity caused the corresponding nomic landscape have the potential to erode the tax base market value of downtown office properties to fall dras- on which municipalities rely for so much of their revenue. tically, while the value of other non-residential property A few of these trends are briefly identified below. While types remained relatively stable. As a result, a large share not all of these trends are currently impacting The City of of the tax responsibility previously carried by the down- Calgary’s financial position, it is necessary to remain cog- town office inventory was transferred to inventory locat- nizant of them to ensure sustainable, longer-term solu- ed outside of downtown. tions are pursued. The high volatility over a small base contributes to Shift from goods production to goods movement the high level of activity in the complaints process for has resulted in manufacturing plants being re- non-residential accounts. Without substantial growth in placed by warehouses and distribution centres. taxable non-residential accounts, these shifts would con- The ability to move production outside Calgary to tinue over time. other locations close to Calgary would impact the tax base. Addressing inflexibility in Non-Residential Sub-Classes E-commerce is reducing demand for retail space. Within Alberta, there are four property assessment (and Service sector continues to expand with an em- tax) classes, specifically: residential, non-residential, farm- phasis on knowledge-based positions. Associated land, and machinery and equipment. Within Calgary, all with this is the trend toward flexible work options but machinery and equipment are taxed40. Council has such as telecommuting and desk sharing, which is historically exempted machinery and equipment from resulting in shrinking workplaces. municipal property tax. The provincial education tax is not collected on machinery and equipment. The growth of the digital economy with border- less, multinational platforms and fewer employees The MGA gives municipalities a large degree of flexibili- presents revenue challenges for taxation systems ty in creating sub-classes within the residential class.41 that rely on property and residency. The City exercised this right in 1995 by splitting the res- idential class into single residential and multi-residential Municipal revenues remain reliant on the land and prop- sub-classes.42 However, the split was short-lived as The erty-based approach to tax generation and collection. City eliminated the difference in tax rates (by phasing the Economic trends, as identified above, indicate that a larg- elimination over three years starting in 1998) as part of er proportion of property tax revenue will need to come the 1996 recommendations of the Calgary Tax Review from residential taxpayers as the non-residential tax base Committee.43 Though the bylaw was never repealed, The shrinks. There is a risk that property taxes could become City has not elected to split the classes since the tax differ- increasingly unaffordable for residential property taxpay- ence was phased out in 2000. ers or service levels would drop, all other things being equal. The Matters Relating to Assessment Sub-Classes Regula- tion, Alta Reg 202/2017 (MRAS) provides the option for Growing the Size of Non-Residential Accounts a municipality to adopt three non-residential proper- ty sub-classes: (1) “vacant non-residential property” (2) There are a relatively small number of taxable non-resi- “small business property”; and, (3) “other non-residential dential accounts – 14,216 non-residential accounts vis- property.” Vacant non-residential property is not defined à-vis 517,578 residential accounts for the 2020 tax year. in MRAS, nor is it defined in the MGA. It is often understood When combined with the rapid rate of change in Calgary’s to mean vacant, unimproved land. Small business proper- cyclical economy, it results in a high level of volatility for ty is a property that is owned or leased by a business that non-residential property assessments.
24 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Bringing Property Taxation into the Twenty-First Century
has fewer than 50 full-time, Canada-wide employees or Like residential, the increasing taxation associated with a lesser number if the municipality so prescribes by by- prospective re-development of a site can cause taxes to law.44 45 Other non-residential property captures proper- increase well beyond the income level and the ability of ties that do not fall into the other two sub-classes. The a non-residential property owner to pay. As an added City has not elected to make use of these sub-classes at complexity, property owners who lease their space and this time. Additionally, under the City of Calgary Charter pass property tax liability onto their tenants may find 2018 Regulation, Alta Reg 40/2018 (the Charter), Calgary that many businesses cannot afford to operate within the may make two additional non-residential sub-classes: (4) space due to the high operating cost. This situation is ex- “derelict” and (5) “contaminated” property. Neither is de- acerbated when the property is underbuilt and therefore fined within the legislation. The City explored the viability has limited tenants to share tax liability, such as a single of creating a small business sub-class in 2019. The risk of storey building on high-density, high-demand land. The MRAS definitions leading to unintended consequences incentive created by market value assessment to develop led to a determination that it was unviable.46 the property to its highest and best economic use, there- fore, needs to be balanced with the potential displace- While the non-residential class is afforded minimal flex- ment of long-time owners through this impact. ibility in assessment and tax classes within Alberta, the province requires municipalities to categorize proper- The issue of market value assessments exceeding the in- ties according to “actual use group” as part of its auditing come level and the ability to pay in areas of gentrification process.47 Within the non-residential class, there are six is not unique to Calgary. This issue is prevalent in virtually actual use groups “Vacant Industrial,” “Industrial,” “Vacant all urban centres that use market value assessments to Commercial,” “Commercial – Retail,” “Commercial – Office,” determine tax share. It includes almost every major city in and “Special Purpose.” Within municipalities, including To- North America. In Canada, this issue is particularly severe ronto48, Vancouver49, Ottawa50 and Hamilton51, tax rates in cities with very high demand and rapidly changing real are assigned by categories like actual use groups within estate markets such as Toronto and Vancouver.52 53 54 Alberta. Since actual use group data is defined and re- Assisting businesses and long-time residents in with- quired by the province, deference could be given to mu- standing the tax increases associated with gentrification nicipalities to create sub-classes based on these existing can help preserve the original fabric of affected areas. categories. However, such measures can correspondingly slow the rate of gentrification and therefore prevent the realiza- Changes in Market Values resulting from Gentrification tion of the economic opportunities associated with rede- Property taxation is based on the premise of the ability to velopment, as well as the achievement of policy objec- pay rather than on the proportion of consumption or use. tives such as densification. Depending on the preferences The assumption being that a taxpayer’s ability to pay is and aspirations of citizens and policymakers, these two correspondingly greater if their property holdings have a competing considerations must be weighed. higher value. While the ability to pay and property wealth is undoubtedly correlated, at least to some degree, gentri- Measures Proposed by the Task Force fication is a common reason for an imperfect correlation. Within some areas, long-time property owners, particu- To address over-reliance on land and property-based ap- larly within the residential class, may have originally paid proach to taxation, the Task Force recommended: a modest sum for their real estate. As gentrification raises the market value of their property, they find themselves Key Message X: Continuously consider guiding princi- with property wealth, but not the income stream, thus ples to inform execution would require accessing the equity in the property in Recommendation #11: Use globally accepted guiding prin- order to have the ability to pay growing property taxes. ciples that generate a well-functioning property taxation These situations are sometimes exacerbated by long- decision-making process to secure a property taxation man- time property owners often being elderly with minimal or date from Council that captures Council’s taxation priorities fixed income. In severe circumstances, property owners initially by 2020 Q4 and on an annual basis after that. may be forced to liquidate their property. The principles should align with those for a sound property assessment and taxation system.
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The annual mandate would provide clarity to Ad- To address the inflexibility in non-residential sub-classes, ministration on the expectations for property tax the Task Force recommended: options for Council consideration. Key Message XII: Make a case for remedies to address The mandate would draw the link between the range legislation that limits tools available in practice for of services, service levels and generally accepted non-residential tax relief. principles for an efective taxation system. Recommendation #12: Work with the provincial government In the event of future tax shifts, the mandate would to allow the legislator’s intent on the definitions for non-resi- form the basis for adjusting services or service deliv- dential subclasses for implementation by municipalities. ery to accommodate the shift as best as possible. Make them usable for The City and expand the tools To address the consequences of the small size of non-res- available for responses when tax circumstances idential accounts and the changes in market value due to that are unique to certain non-residential taxpayer gentrification, the Task Force recommended: groups emerge. Key Message XI: Adopt an evidence-based approach The main goal is to support targeted, temporary re- to determining the distribution of tax responsibility lief and not to target subclasses for permanently high between residential and non-residential classes and taxation. The change cannot materially increase tax within each class, including the possibility of pegging for any group. During economic cycles, some taxpay- the mill rate and using reserves for stabilization er groups are more adversely afected. Recommendation #19: Contract with a reputable indepen- Provide capacity for relief because the current sub- dent expert to provide an acceptable and reasonable split class definition makes for a blunt tool for property of the property tax responsibility between residential and tax relief. non-residential taxpayers. Another goal is to support the general direction of Determine the objectives that would inform the de- tax policy for the long-term. termination of the acceptable and reasonable split. Implement a review mechanism to confirm that the Incorporate the outcomes of recommendation #12 taxation arising from the assessment sub-classes do that targets making subclasses usable. not target a specific sub-class for higher taxation. Explore the viability of pegging mill rates and options (if any) that would work for the Calgary context. The extent to which it makes sense to determine tax rate thresholds that once breached would trigger the need for mill rate stabilization using an existing or a new reserve. The range of fiscal tools, including reserves like the fiscal stability reserve, to minimize tax volatility while also maintaining a stable fiscal position. The policy guidelines that would focus on stronger discipline for using the fiscal stability reserve and a minimum level of reserves dedicated to mill rate sta- bilization. Complete the exercise no later than 2021 Q2. Use the results to address the risk that one taxpayer category may be overpaying for services. Use the results to anchor future tax redistribution de- cisions.
26 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Preparing for changes that would occur as the economy evolves
Preparing for changes that would occur as the because of corporate tax planning strategies by multina- economy evolves tional firms that shift profits from higher-tax jurisdictions to lower-tax jurisdictions. The result is tax base erosion for The Emergence of the Rapidly Growing Digital Economy the higher-tax jurisdictions. Addressing base erosion and profit shifting (BEPS) in the The digital economy, also known in the past two decades digital economy is a key priority of governments around as the internet economy or the new economy, refers to an the world. The concern is about tax planning by multi- economy that is based on information and communica- national enterprises that take advantage of different tax tion technology (ICT). systems to artificially reduce taxable income or shift prof- Statistics Canada, in 2019, published its initial estimates its to low-tax jurisdictions in which little or no econom- of the size of the Canadian digital economy55, using the ic activity is performed. In response to this concern, the same classification methodology adopted by the U.S. Bu- OECD and G20 countries adopted a 15-point Action Plan reau of Economic Analysis (BEA)56 in 2018. Digital econo- in 2013.57 Initial work to address the tax challenges of the my products considered were: digital economy was carried out by the Task Force on the Digital Economy (TFDE), and the result was published in digitally-enabled infrastructure: computer hard- 58 59 60 ware, software, telecommunications equipment an OECD report in 2015. and services, support services, structures, and the The TFDE considered direct taxes such as income tax and Internet of things (IoT) indirect taxes such as consumption tax. The finding on the digitally-ordered transactions (e-commerce): busi- indirect tax issue is particularly relevant to municipalities. ness-to-business (B2B), business-to-consumer The taxes are collected from the sellers of goods and ser- (B2C), and peer-to-peer (P2P) vices. However, the consumers of the purchased goods or services bear the burden of the taxes as part of the digitally-delivered products: content transmitted market prices they pay. The fundamental policy issue was and consumed in digital format whether the levy should be imposed by the jurisdiction of The nominal GDP associated with the digital economy origin or destination61. The widespread consensus is that in Canada accounted for 5.5 per cent of the nation’s to- the destination principle is preferable. To the extent that tal economy in 2017. Between 2010 and 2017, the nomi- Calgary remains a large market for digital economy goods nal GDP growth for the digital economy was 40 per cent, and services, the ability to generate consumption taxes higher than the 28 per cent growth of the entire economy from the digital economy expands. However, the benefits in Canada. of consumption taxes from the digital economy in Cal- gary only accrue to the federal government. In 2017, the Canadian digital economy produced a total value of $208 billion of goods and services, with $156 It would be desirable for Canadian municipalities to billion (or 75 per cent) in digitally-enabled infrastructure, have the authority to levy direct (e.g. income) or indirect $27 billion (or 13 per cent) in digitally-delivered products, (e.g. sales taxes) on digital economy goods and services. and $25 billion (or 12 per cent) in e-commerce. There However, Canadian municipalities are only authorized to were 886,100 jobs associated with digital economic ac- charge registration fees and occupancy taxes through tivities in Canada, with 585,700 (or 66 per cent) of them in digital matching firms. the digitally-enabled infrastructure category, 164,500 (or The use of the Internet and smart devices has enabled the 19 per cent) in e-commerce, and 135,900 (or 15 per cent) creation of digital matching firms in the sharing economy. in the digitally-delivered products category. All of which The sharing economy refers to peer-to-peer sharing or the demonstrates the large size of the digital economy. transition of goods and services. The digital matching firms in the digital sharing economy include: Municipal Revenue Opportunities available through the Digital Economy firms that provide online classifieds such as eBay or Craigslist, The revenue source that typically receives immediate companies that provide assets shared by consum- consideration by government authorities is taxation. For ers on an ad-hoc basis such as Lime, the digital economy, taxation is beset with the base ero- sion and profit shifting (BEPS) challenge. BEPS emerges firms that offer transportation and food delivery services such as Uber or Lyft, and
Financial Task Force | Report and Recommendations 27 C2020-0742 ATTACHMENT 3 Preparing for changes that would occur as the economy evolves
platforms for travel arrangements and reservation Table 2: services such as Airbnb. Municipal Fees for Uber in select Canadian Cities These digital matching firms build on ICT infrastructure to access and monetize under-utilized public assets (road City of City of infrastructure for Uber) as well as individual assets (vehi- Toronto Edmonton cles for Uber and home spaces for Airbnb). They have four One-Time Fees common characteristics62: Initial Application/ $20,400 per $20,706 per They use information technology (IT systems), typ- Business License Fee license license ically available via web-based platforms, such as Annual Driver Fees mobile “apps” on Internet-enabled devices, to fa- Standard Fees $15.30 per driver $423 per vehicle cilitate peer-to-peer transactions. Accessibility Fund $7.23 per driver $50.00 per driver They rely on user-based rating systems for quality Program Fee control, ensuring a level of trust between consum- Trip Fees ers and service providers who have not previously met. Standard Fee $0.31 per trip $0.30 per trip They offer the workers who provide services via Accessibility Fund $0.10 per trip digital matching platforms flexibility in deciding Program Fee their typical working hours. Notes: In 2016, City of Toronto adopted a new vehicle-for-hire bylaw that applies To the extent that tools and assets are necessary to all Private Transportation Companies (PTCs), including taxi companies, to provide a service, digital matching firms rely on limousine companies, and ridesharing companies like Uber. Rates listed are as of March 2020 for PTCs63 the workers using their own. On 2020 March 1, The City of Edmonton’s new “Vehicle for hire bylaw There is a significant increase in the amount of econom- 17400” took effect with listed rates. It applies to taxis and accessible taxis, limousines, shuttles, transportation network vehicles (TNV), and private ic activity in the digital economy not captured through transportation providers like Uber.64 the municipal property tax. Reliance on registration fees and occupancy taxes through digital matching firms are a Table 3: good start, but municipalities need additional options. Ta- ble 2 highlights the revenue currently generated through Airbnb occupancy taxes in Canadian Cities registration fees from Uber in Toronto and Edmonton. Airbnb collects and remits taxes (VAT/GST and occupancy Province Airbnb Occupancy Taxes taxes) on behalf of its listing hosts in the areas it has made British Guests who book Airbnb listings that are agreements with the local governments. Airbnb calcu- Columbia located in BC will pay a Municipal and lates the taxes and collects them from guests at the time Regional District Tax at 2 per cent to 3 per cent of booking. It then remits collected taxes to the applica- of the listing price, including any cleaning ble tax authority on the hosts’ behalf. In Canada, Airbnb fees for reservations 26 nights and shorter. has agreements with several provinces and cities to col- lect and remit occupancy taxes to municipalities, on top Ontario Guests who book Airbnb listings that are of respective provincial sales taxes. located in the following cities in Ontario will pay a Municipal Accommodation Tax at 4 per cent of the listing price, including any cleaning fees for reservations 28-30 nights and shorter. The cities include Toronto, Ottawa, Barrie, Brockville, Greater Sudbury, Waterloo Regional Tourism District (cities of Kitchener, Waterloo, Cambridge, Woolwich, Wellesley, and Wilmot only), Mississauga and Windsor
28 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Preparing for changes that would occur as the economy evolves
Measures Proposed by the Task Force As a centre of excellence for the digital economy, tar- get initiatives addressing adaptable talent, digital To address the emergence of the rapidly growing digital governance and innovation, and corporate social economy, the Task Force recommended: responsibility. Key Message XIII: Anticipate, prepare and support the To address municipal revenue opportunities available transition to everchanging economic realities through the digital economy, the Task Force recommend- Recommendation #5: Prepare for the future by looking in- ed: wards and creating a good environment where businesses, Key Message XIV: Develop and implement additional small and large businesses, can thrive. new economy revenue options because the transition The economy of any city is not static – businesses to the new economy poses significant downside risk open and close, leading to economic shifts. to some existing sources Create conditions where communities, entrepreneur- Recommendation #22: Work with The City of Calgary’s Eco- ship and innovation can thrive. nomic Resilience Task Force to assess the extent to which The City of Calgary can generate revenue from new sources as we Recommendation #6: Consider diferentiated taxation for transition to the new economy. Undertake a comprehensive businesses and organizations that make significant contri- review and gap analysis on the utilization of new economy butions to the character and fabric of the city. It would in- revenue sources. The review should include a consideration clude of legislative changes required to acquire authority (if appli- Organizations like BIAs cable) and administrative practices that need to change for Non-profit organizations execution. The tools to consider include but are not limited to: Owner-operated small businesses with limited finan- cial means Return on Assets or Investments/ Proprietary Charges Recommendation #7: Identify future value opportunities for ▶▶ Consider investing in broadband infrastructure the City and the capacity to adjust to the rapidly growing to gain long term dividends, including through e-commerce activity level. Our economy is everchanging, partnerships with the telecommunications in- and our activities should adapt to the transformation of dustry. behaviour in society. The connection between cities and cit- ▶▶ Invite proposals from members of the public and izens would increase in the future. Adapt City operations to firms that would generate ideas for new econo- these changes. my revenue sources. Recommendation #8: Leverage Calgary’s economic strategy ▶▶ Exchange value created by City, e.g. data and – “Calgary in the New Economy.” Align decision-making pri- other assets, subject to privacy rules, for private orities with the strategy. sector services or dollars to limit cost pressures. Focus activities on the four pillars of the strategy that Regulatory Charges involve making Calgary the destination for talent in Canada, the leading business-to-business (B2B) in- ▶▶ Develop and implement ‘franchise fee’ type novation ecosystem, the most livable city in Canada, charges that leverage value in regulated assets and the most business-friendly city in Canada. that reflect the transition to the new economy, e.g. Calgary’s 5G infrastructure. Establish Calgary as a centre of excellence where businesses build the future. User Fees As a centre of excellence for energy, communicate ▶▶ Develop and implement vehicle permitting specific initiatives that demonstrate long-term ef- charges with the transition to driverless cars. forts at diversifying, including a sustainable energy ▶▶ Develop and implement licenses for new econo- sector and oil and gas industry. It should include my services, e.g. e-scooters, ride-sharing. tracking performance metrics, such as ESG scores, to Taxes demonstrate progress. ▶▶ Develop and implement a separate property tax class to capture businesses that are not bricks
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and mortar businesses operating outside the property assessment system. ▶▶ Develop and implement taxation for e-com- merce revenue generated from local consump- tion of goods and services not reflected in bricks and mortar. ▶▶ Develop and implement a tax on home-based small businesses that would become more prev- alent due to the transition to the new economy. Consider a diferent tax rate if a home is used as an office but address the trend toward increased home-work.
30 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Making Calgary More Competitive, Livable and Attractive
Making Calgary More Competitive, Livable and Figure 21: Benchmarking Business Taxes Attractive Business - Marginal Effective Tax Rate Major Canadian Municipalities in 2018 Tax Competitiveness and Livability (Selected Canadian Cities, per cent) Winnipeg 47.6 In recent years, Calgary has sustained high scores in liva- bility as the top-rated city in the western hemisphere. The Halifax 45.9 success has been achieved at the same time that taxes on Montreal 45.4 households and businesses have been low. The City’s mu- Moncton 45.1 nicipal property tax for a representative two-storey house Charlottetown 43.1 remains lower than many cities in the Calgary Region and across Canada. As well, the marginal effective tax rate on Vancouver 41.0 businesses in Calgary is well below average. These factors Toronto 38.5 – livability and tax competitiveness – would play a vital Calgary 38.2 role in attracting skilled labour and capital investments Saskatoon 38.1 into Calgary going forward. St. John’s 34.6 Figure 20: Benchmarkring Residential Property Taxes Source: Business Tax Burdens in Canada’s Major Cities: The 2018 Residential Property Tax Report Card, C.D. Howe Institute, Dec. 2018 Representative Two-Storey House (Selected Canadian Cities, dollars) Grande Prairie 2,755 Adding stability to tax competitiveness to build Lethbridge 2,712 credibility and trust of private capital Leduc 2,705 Recently, Calgary was the number one destination for in- Toronto 2,679 flows of foreign capital investment into Canadian cities. Edmonton 2,327 A good example is the flow of investment from the Asia Regina 2,268 Pacific region. At $41 billion through 77 deals between Saskatoon 2,143 2013 and 2018, Calgary outstripped other Canadian cities Halifax 2,124 with Kitimat, British Columbia a distant second at $26 bil- Winnipeg 1,733 lion. It was almost entirely driven by investments into the oil and gas production and oil equipment, services, and Medicine Hat 1,720 distribution sectors. There is a need to expand the pool Calgary 1,658 of investment opportunities in Calgary. Sustaining the in- Source: City of Calgary, Residential Property Taxes and Utility crease in tax-supported expenditures below the rate of Charges Survey 2018 inflation and population growth would support building credibility and the trust of private capital. The budgeting process considers both Council priorities Over the last few years, The City has considered multiple and directives as well as aggregate service needs and ex- views about the need to differentiate tax rates between pectations relating to what Calgarians value. They inform assessment classes and within classes. The practice in The operating and capital budget requirements. Subsequent- City has focused on the tax share for residential vis-à-vis ly, there is an effort to balance the level and breadth of non-residential taxpayers. It is a practice adopted in sev- services with revenue generation authority. The balance eral Canadian municipalities. Other municipalities apply considers that some of the services provided by The City policies that peg the differences in the mill rates. An in- benefit non-city residents and businesses, so that the rev- dependent, rigorous analysis is required to inform policy enue received from them may not align perfectly with decisions going forward. The objective is to determine an services received. There is a need to quantify benefits for acceptable and reasonable split of the tax responsibility. the level and breadth of services for those that don’t live As well, there is scope to use tax rates as a tool for coun- in the city. tercyclical fiscal policy.
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Figure 22: Growth of Tax-Supported Spending Building capacity to offer relief when prevailing Tax Supported Expenditures vs. Population + Inflation economic conditions demand it 40% One Calgary Approval (2018 November) Many economists argue that for normal economic boom One Calgary Adjusted (2019 July 31) and bust cycles, stabilization should be pursued using tion monetary policy. The primary logic is that monetary pol- 30% 1.5% scenario 0% scenario la tion + Inf icy would result in swift action that can be more easily Popula reversed as conditions changes. However, monetary pol- 20% icy tools are the exclusive privilege of the federal govern- ment implemented through the Bank of Canada. They are 10% Actual also applied for the average or overall economic condi- tion, rather than conditions specific to a province or city. 0% The only options available to the provincial and munici- 2014 2015 2016 2017 2018 2019 2020 2021 2022 pal governments are fiscal policy tools. Actual Budget There are nine broad categories of fiscal policy options Source: City of Calgary Annual Reports and Budgets, Statistics Canada available to give the economy a lift when downturns emerge. Currently, only four of these nine measures are Figure 23: available to The City of Calgary. For example, during City-level Asia Pacific Investments in Canada (2013-18) COVID-19, The City of Calgary applied measures #1, #3, and #4 through to June 2020 (see Figure 24). There is a Top 15 Canadian Cities Number desire to have additional tools by fully turning on option Value ($M) (2013-18) of Deals #5 to better support the business community. It is of par- 1 Calgary, Alberta 41,864 77 ticular interest for Calgary, given the highly cyclical na- ture of the economy, as reflected in a higher number of 2 Kitimat, British Columbia 26,243 8 downturns relative to other big cities in Canada (Figure 3 Vancouver, British Columbia 14,060 150 25). However, the extent of using option #5 is limited by 4 Fort McMurray, Alberta 7,557 4 the fact that municipalities are not allowed to use deficit 5 Toronto, Ontario 7,444 137 financing for a long period of time and cutting municipal services during recessions is not a countercyclical choice. 6 Woodstock, Ontario 5,140 14 7 Montreal, Quebec 4,277 43 Figure 24: Channels of Support for Downturns 8 Dawson Creek, British Columbia 3,198 1 Top 15 Canadian Cities Provin- Munici- Federal 9 Cambridge, Ontario 3,017 7 (2013-18) cial pal 10 Duvernay, Alberta 2,404 1 11 Edmonton, Alberta 2,264 12 Measures for Household 12 St. John's, Newfoundland & Labrador 2,246 2 1 Lump-sum rebates and incentives Y Y Y 13 Alliston, Ontario 2,245 5 2 Temporary across-the-board rate cuts Y Y N 14 Aurora, Ontario 1,811 3 3 Defer/ eliminating scheduled tax Y Y Y 15 Fort Nelson, British Columbia 1,244 3 Measures for Businesses
Source: Asia Pacific Foundation, 2019 Investment Monitor65 4 Incentives for new investment Y Y Y 5 Cut in tax rates for businesses Y Y N 6 Operating loss/ carryback provision Y Y N Government Spending Measures 7 Direct transfers to households Y Y N 8 Invest in public works project Y Y Y 9 General funding to local governments Y Y N
Source: U.S. Congressional Budget Office (Options for Responding to Short-Term Economic Weakness, 2008)
32 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Making Calgary More Competitive, Livable and Attractive
Figure 25: Frequency of Downturns in Big Cities ue of services provided by The City that do not accrue to residents and businesses in the city. Incidence of negative annual nominal GDP growth Develop and implement a cost of service study, start- Vancouver 1 ing with those services for which the estimation pro- Edmonton 3 cess is easier and faster to complete. Calgary 4 To address the need to add tax stability to tax compet- itiveness to build credibility and trust of private invest- Toronto 1 ment capital, the Task Force recommended: Ottawa 2 Key Message XVI: Reduce tax volatility over time for Montreal 0 individual residential and non-residential tax payers to limit the risks associated with the cost of living and Source: Oxford Economics, 2019 doing business in Calgary Measures Proposed by the Task Force Recommendation #20: Calgary residential and non-residen- tial taxpayers need to rely on stable property tax payments To address the need to improve tax competitiveness with- with low and predictable changes over time. out sacrificing livability, the Task Force recommended: Change the approach from determining the level of Key Message XV: Achieve a balance between a great services before finding the tax dollars because it runs city in which to live and having a competitive level of the risk of creating volatility. taxation. Reduce the risk of volatility by determining maxi- Recommendation #18: Further develop and sustain Cal- mum revenue growth and then finetuning the level gary’s superior livability outcomes while having competitive of service to meet the restricted revenue growth. residential and non-residential property taxes. Recognize that some thin-tail risk events, such as the The goal is tax competitiveness. COVID-19 pandemic, that would be challenging to Use the other five largest Canadian cities and the accommodate. other five large regional municipalities in the Calgary Key Message XVII: Taxation policy and its implemen- region for the comparison. tation ought to balance stability in the level of taxa- To be transparent and credible, adjust for diferences tion relative to the level of service in the range and level of service as well as extent of Recommendation #31: Adjust the taxation policy and its fiscal tools as best as possible across jurisdictions. implementation to balance the level of service and taxation Measure and benchmark tax competitiveness using level in favour of long-term stability in taxes over stable ser- municipal property taxes per square foot for non-res- vices: idential property. Build flexibility to service delivery – plan for diferen- At the same time, ensure a balance so that taxes are tiated operational flexibility of service level provision, competitive per unit of representative residential not the elimination of services that Calgarians have dwelling. come to rely on, to allow adjustments to the costs to deliver services promptly. For example, adjusting the Key Message V: Continue to develop processes that frequency of garbage collection to accommodate fi- yield information on the extent to which City services nancial circumstances. It would be beneficial to: benefit residents and local businesses to incorporate in decisions. ▶▶ Underlie the analysis that would inform deci- sions with a triple bottom line review of impacts Recommendation #28: Address the distinction between two to avoid defunding vulnerable groups or gener- elements. First, the value of services, privileges and The City’s ating unintended consequences. value proposition. Second, the cost of services that benefit residents and businesses in the city. The diference would ▶▶ Outline and communicate the options available represent City services aforded to non-residents. for consideration and the rationale for the Coun- cil decisions. Develop and implement processes that would gener- ate good and acceptable information about the val-
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Adjust to Taxpayer Preferences – Recent survey data, ▶▶ Encourage the use only when the benefits exceed following the downtown tax shift, suggested that the costs, otherwise rely on existing tools avail- Calgary taxpayers are more tolerant of volatility in able through tax rate changes and other tools. the level and breadth of services than tax volatility. ▶▶ Incorporate rules that would allow discontinu- Conduct additional survey analysis to verify the find- ation of such practices when the evidence indi- ings and update taxation policy as required to adjust cates that anticipated positive net benefits do by leveraging the flexibility built into service delivery. not materialize. Exception for New Services – Recognize better accep- tance of increases in taxes whenever new services or service improvements occur that lead to the increas- es. Private Sector Support – Adjustment to services in constrained environments should include contract- ing out services wherever possible. It would consist of a business case that confirms that cost savings would materialize – prioritizing the local business commu- nity where it makes the most sense. Consider adding the cost of administering the contracts (i.e. contract administration) as an administration fee. Municipal Finance Communication – Intensify com- munication on the link between taxes paid and ser- vices received. Recognize that many taxpayers have a tax input-to- service output view of municipal fi- nances. SAVE Program Review – Embrace the findings from the detailed review of the balance of spending activ- ities relative to existing taxation authority already underway. To address the need to build capacity to offer relief when prevailing economic conditions demand it, the Task Force recommended: Key Message XVIII: Extend tax rates as a potential tool for countercyclical fiscal policy Recommendation #32: Advocate for the scope to deploy countercyclical fiscal policy at the municipal government level when the local economy is in a recession, by starting with the following tools and then expanding on them: Tax rate reductions as targeted relief for businesses whenever economic conditions suggest that the re- lief would generate economic stimulus. Explore the benefit of the timely conversion of un- derutilized or vacant land into structures when re- quired to spur economic activity ▶▶ Explore the benefits before proceeding with such tools, including legislative changes that improve the ability to achieve goals.
34 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Working Better with Partners in Achieving Progress
Working Better with Partners in Achieving Progress 1. New infrastructure funding formula based on pro- vincial revenues that provide greater predictabili- Improving working relationships with a province that ty for cities and the province. prefers few fiscal tools 2. Improve administrative efficiencies by introducing changes to the length and duration of Local Im- Over the years, the Alberta provincial government has provement Taxes and reviewing eligible uses for emphasized building Alberta tax advantages in Canada special taxes for modern infrastructure projects. by striving to maintain the lowest or one of the lowest tax rates in the country. Some of the key measures over the 3. Improve the administration of the destination last 15 years include: marketing fee to be directed towards tourism ac- tivities. Elimination of the high-income surtax from 8 per cent in 2000. Improving working relationships with local businesses Elimination of the capital tax on financial institu- In the aftermath of the challenges associated with the tions from 1 per cent in 2001. 2015 and 2016 economic recession, Calgary’s business Also, in 2001, Alberta became the only Canadian community needs support. The Opportunity Calgary In- province to have a flat tax rate of 10 per cent for all vestment Fund (OCIF) was created by The City of Calgary taxable income (until the 2015 tax year66). in 2018 as a catalyst to attract investment, drive innova- Since 2001, Alberta maintained the highest Basic tion, and spur transformative economic development in Personal Income Tax Exemptions for single and the city. Additional efforts are needed to leverage the spousal taxpayers in Canada. Fund. Waived health care premiums for taxpayers in all The introduction of business-friendly initiatives that seek income categories in 2009. to remove barriers to businesses and actively support their growth and development is welcome. An important Elimination of the payroll tax in 1997. first step is status as the first municipality in Canada to Alberta continues to be the only province in Cana- allow small business customers to start a new business da without a provincial general sales tax. completely online. These are important steps, but more Based on the provincial Budget 2020, Alberta has the is needed to make Calgary even more attractive for busi- fewest tax tools and lowest tax rates in its provincial tax nesses. An ongoing partnership with businesses to un- system, compared to other Canadian provinces. By an es- derstand and overcome barriers and promote growth is timate, Alberta’s tax advantage in 2019 ranges from $13.4 billion when compared to Ontario, to $23.5 billion if com- pared to Newfoundland and Labrador.67 68 As a result, the Alberta provincial government has been unwilling to extend authority for additional fiscal tools to Alberta municipalities and cities. The recent revision to the Municipal Government Act had limited changes, such as adjustments to expanding the use of off-site levies for capital infrastructure in new developments to include community recreation facilities, fire hall facilities, police station facilities and libraries. The City of Calgary Charter came into force in 2018. In other Canadian jurisdictions, the introduction of City Charters afforded new revenue authority (see table 4). The preference of the Alberta provincial government was to disallow new revenue authority while supporting en- hancements to existing tools including:
Financial Task Force | Report and Recommendations 35 C2020-0742 ATTACHMENT 3 Working Better with Partners in Achieving Progress . 78 74 . 70 . 72 From 2010-2016, the TPST has generated total total TPST has generated 2010-2016, the From $69.6 million for of approximately net revenue Toronto the City of Revenue Benefits Revenue 2014 and 2018 between revenue MLTT Total of 13.8 annual rate an average by increased $730 $450 million in 2014 to from per cent, million in 2018 2010. It 2008 to from Toronto City of by Used On January 1, 2011, tax payers. disliked by was voted City Council Toronto the newly elected was a decision that the PVT, repeal 39-6 to the city cost expected about $64 million to annually Tourism funding for provides revenue MAT The and services that as programs as well Toronto, culture, transit, use (such as roads, visitors and recreation). areas natural parks, EHT revenue increased from $38 million in from increased EHT revenue $39.4 million in 2018 and empty2017 to 2,538 units in 2017 to homes declined from 1,989 units in 2018. . The goal of the The . 76 77 The tax applies to the owners of all third-party the owners tax applies to in the The signs It is an metre. than one square greater city face with a sign as of the sign, and location annual tax based on the size one of six fall into Signs displayed. as the type of copy well categories. Description on all propertiesIt purchases in the city is applied to in the Currently, Tax. Transfer Land the Provincial addition to structure is based on the types and consideration rate MLTT rates. of MLTT properties levels of purchased with five values vehicles, commercial light A tax on passenger vehicles, personal use. for or moped registered motorcycles the pay expected to were address Toronto with a Registrants If the PVT renewal. PVT validation plate the time of licence at not be renewed. would validation plate not paid, was short-term must rentals and individuals offering Hotels the authorized Toronto City of The MAT. per cent a four pay collection as the City’s Association Hotel Toronto Greater short-term and the licensed rental – Hotel, the MAT for agent – the MAT collection for agents as the City’s companies Short-term Rental. It class 1 residential is a tax on empty and under-utilized Vancouver properties within the City of EHT is to return empty or under-utilized properties empty use return or under-utilized to EHT is to and work people who live homes for rental as long-term initiatives used for are raised Net revenues Vancouver. in housing. respecting affordable
73 75 71 69 Third-Party Sign Sign Third-Party (TPST)Tax Municipal Accommodation (MAT). Tax New Revenue Revenue New Authority Municipal Land Tax Transfer (MLTT) Empty Home (EHT) Tax Personal Vehicle Vehicle Personal (PVT)Tax City Charter Legislation City of Act Toronto (2006) Vancouver Charter (1953) Toronto Vancouver Jurisdiction 1 2 Table 4: New Revenue Authority arising from City Authority arising from Charters Revenue in Other 4: New Canadian Jurisdictions Table
36 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Working Better with Partners in Achieving Progress Revenue Benefits Revenue the arts of funding for It and culture is a source Winnipeg. in the City of Imposed on advertising (primarily signs of the the owner and paid by billboards) of tax is assessed based on the size The sign. are and mobile signs Identification the sign. this tax. from excluded among the signs support to Destination It revenue generates Convention Winnipeg the Winnipeg, including other and special events Centre, will that projects and events organizations, Winnipeg. to tourism encourage Description hosting performance venue It with a ticket any is applied to the entertainment facilities with for of $5.00 or more price for- and capacity seating or larger of 5,000 seats a fixed of the cent is 10 per rate The tax cinemas of all sizes. profit admission price. Imposed on advertising and paid (primarily signs billboards) tax is assessed based on the The of the sign. the owner by among are and mobile signs Identification of the sign. size this tax. from excluded the signs by the collected tax accommodation It percent is a five and etc.) motels, (hotels, all accommodations for providers monthly. Winnipeg the City of to remitted It is Taxes. of Municipal and School collected instead A fee city to services contribution which the mobile homeowner’s the propertyparallels collected on other homes. taxes of electricityA tax on the consumption gas and natural tax The purposes within the city non-heating limits. for the seller. by collected and remitted be calculated, is to along and, revenue as general tax collected is treated The services the various for pay is used to Taxes, with Property the residents. to Winnipeg the City of by provided 79 80 New Revenue Revenue New Authority The Entertainment Tax Funding Advertising Business Signs Tax Accommodation Tax Mobile The Homes Licenses Fee Gas & Electricity Tax. City Charter Legislation City of Winnipeg Charter (2002) Winnipeg Jurisdiction 3 Table 4: New Revenue Authority arising from City Authority arising from Charters Revenue in Other 4: New Canadian Jurisdictions (continued) Table
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essential.
Measures Proposed by the Task Force To address the need to improve working relationships with the province that prefers few fiscal tools, the Task Force recommended: Key Message XIX: Advocate for timely legislative changes by the other orders of government Recommendation #9: Develop research and analysis that document the extent of the decline in bricks and mortar and the transition to new models of delivering goods and services. Use it to demonstrate that municipalities’ tradition- al real estate tax revenues cannot capture the transition to e-commerce transactions. Use the findings to advocate for the reform of municipal finances and the revenue-generat- ing tools available to municipalities. To address the need to improve working relationships with local businesses, the Task Force recommended: Key Message XX: Investigate the reasons for the crisis level vacancy rate in the downtown office market and respond with actions and policy changes to the regu- latory environment that enhance attractiveness Recommendation #33: Implement targeted engagement and surveys to learn the motivations of businesses that leave down- town Calgary for other parts of the city and new businesses that choose to locate outside downtown Calgary despite low-cost, abundant office space in downtown Calgary. Use the findings to inform policy changes to the reg- ulatory environment that would make downtown Calgary, and other parts of Calgary, more attractive. In addition to policy changes, determine the actions and activities that The City and community can do to alleviate that crisis. Some of the activities would include ▶▶ Promoting the benefits of the business environ- ment in Calgary to retain and attract businesses. ▶▶ Demonstrating that Calgary is a modern city that is the centre of activity beyond oil and gas activity. ▶▶ Emphasizing the high quality of life in the city and the quality of governance and policymaking in the city to encourage growth right across the city.
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Improving Tax Efficiency for Long-Term Fiscal circumstances. Still, residents have found explanations Sustainability about the incremental adjustments unnecessarily con- fusing. Negative feedback for both short and long assess- Opportunity to enhance management of City financial ment cycles would suggest that the challenge is not the frequency of assessment. resources There are four performance criteria for assessing quality Figure 27: Pre-Mitigation Non-Residential Property Tax implementation and administration of revenues and tax- Volatility (2016-2019) es. They include minimizing the tax gap (the difference Non-Residential Municipal Property Tax Volatility without between revenues expected and received), effective tax Mitigation Measures administration, information security, and convenience of payment. For the fourth criterion, only 60 per cent of Average Rate of Change, CAGR taxpayers participate in the TIPP program designed to (2016 to 2019) support payment convenience. That level of performance Growth was 30% or more 5.9% is like or better than comparable municipalities across Growth was between 20% and 29% 10.1% Canada, but improvements would be beneficial. They would limit the strain on resources during tax season and Growth was between 15% and 19% 29.5% smooth City cashflows over time (Figure 26). Growth was between 10% and 14% 31.7% Figure 26: Tax-related Cash Flow Volatility Growth was between 5% and 9% 12.3% 2020 Cash Forecast (Assuming Funds Not Invested) Growth was within 5% 6.0%
$1,200M Municipal Taxes Declined by 5% or More 4.4% Proportion of Non-Residential Tax Base $1,000M Source: The City of Calgary $800M $600M For the past four years, The City has applied one-time mitigation measures repeatedly. It includes four consecu- $400M tive phased tax programs often combined with one-time $200M rebates. The approach is diminishing the credibility and predictability of taxation policy. While Council has ben- $0M Jan Mar Jun Sep Dec efitted from the additional degrees of freedom for deci- 2020 2020 2020 2020 2020 sion-making, it provides less clarity to the general public Source: City of Calgary about future taxation expectations. It does not support long-term planning for taxpayers, particularly for invest- Identifying early signals of the urgency for tax reform ment decisions. Fiscal sustainability at The City is also af- There are differences in the frequency of property assess- fected because the programs create ‘bow waves’ that last ments for municipalities across Canada. They are due to long after the decisions. Taxpayers find it difficult keeping differences in legislation that reflect underlying prefer- up with changes and would benefit from simplicity. ences and value judgements in the trade-off between certainty (less frequent assessments) and equity (more Adequate consideration for the volatility impacts on frequent assessments). For example, the province of On- taxpayers tario undertakes property assessments every four years. Currently, the tax rate decision occurs before finalizing Ordinarily, that process for property valuation would pro- the assessment roll. First, Council’s tax rate decision for a vide some assurance for four years. However, it elevates given tax year occurs annually in late November of the the risk of a substantial tax adjustment every four years. previous year. Then, the annual property assessment roll It is because property taxes, after four years, often re- completion occurs in late December. Completing the as- flected economic conditions for an earlier and different sessment roll aligns with the legislative requirement to economic cycle. It led to incremental adjustments mid- inform property owners and afford them enough time way through each cycle to reflect changes in economic
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to review their assessments and bring forward any com- long-term fiscal sustainability. plaints. Having the tax rate decision before finalizing Key Message XXII: Strive for a higher uptake of the the tax roll limits the understanding of the implications tax installment payment plan to improve cash flow to taxpayer groups. The consideration of the impacts at smoothing by changes to the customer experience in- property tax bylaw finalization in March or April of the cluding nudging tax year is late. The Tax Shift Assessment Working Group’s recommendation was to provide Council with illustrative Recommendation #25: Increase the uptake on The City’s Tax information in November of the anticipated tax changes Installment Payment Plan (TIPP) program by developing for a representative number of properties, including a sin- and implementing processes for pursuing intrinsic motiva- gle residential dwelling and a variety of non-residential tion in addition to extrinsic motivation. properties. This assists Council in understanding the po- Expand extrinsic motivational cues, such as financial tential amount of individual taxpayer volatility for those rewards, to encourage uptake on the TIPP program. illustrative examples. Examples are considerations for adjustments to the There is a rapid rate of change in Calgary’s cyclical econo- sign-up fee and potential financial incentives like my. It results in a high level of volatility for non-residential one-time discounts. property assessments. There are a relatively small number Expand the methods applied to increase TIPP pro- of taxable non-residential accounts – 14,216 non-residen- gram uptake to include nudging. Nudging focuses tial accounts vis-à-vis 517,578 residential accounts for the on intrinsic motivation using subtle hints, and evi- 2020 tax year. The high volatility over a small base contrib- dence from behavioural economics suggests that it utes to the high level of activity in the complaints process is more efective than extrinsic motivational cues. for non-residential accounts. Reforms using smoothed To address the need to identify early signals of the urgen- assessments rather than annual assessment, for annual cy for tax reform, the Task Force recommended: taxation policy could be beneficial. Also, policy efforts that provide better certainty for the non-residential class Key Message XXIII: Maintain processes that allow the stand a good chance of reducing the magnitude of com- annual practice of property assessments and valu- plaints from non-residential accounts. ation because it provides evidence that enables The City to anticipate changes Measures Proposed by the Task Force Recommendation #26: Do not sacrifice high-quality infor- To address the need to enhance management of City fi- mation available through annual property assessments nancial resources, the Task Force recommended: that improve the ability to monitor and respond to underly- ing changes in the economy and real estate markets. Key Message XXI: Focus on long-term fiscal sustain- ability Maintain the practice of undertaking annual prop- erty assessments to generate baseline information Recommendation #10: The goal is long-term fiscal sustain- about the underlying shifts in the property tax base. ability. Without frequent updates, it would be challenging to Establish and commit to the principle that long-term anticipate changes in the distribution of the tax re- growth in revenue from property taxes shall reflect sponsibility across groups. anticipated long-term population and real econom- Review the best way to use that information to posi- ic growth. tion The City to respond to the changes. Complement with ongoing work on prudent budget- Recognize evidence of the limited cost savings from a ing and spending. transition to undertaking assessments less frequent- Although the mandate of the Financial Task Force ly, such as biennially or every three years. did not include a consideration of initiatives targeted Conducting assessments every year should not nec- at spending discipline, Task Force members empha- essarily lead to or translate to direct and immediate size the vital role of spending discipline for achieving
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changes in the distribution of the tax responsibility. es. Key Message XXIV: Avoid ad-hoc decision-making and Adjust the timing of the approved tax rate decision resist the urge to apply one-time mitigation measures or the timing of assessment roll completion or both Recommendation #34: Make property taxation policy more When determining tax rates for budget approval, predictable by limiting one-time mitigation tools, such as provide as much information as possible on the dis- phased tax programs and rebates, to address imbalances tribution of the tax responsibility across classes (and across taxpayer groups. sub-classes if applicable). Build Credibility – Support municipal property taxa- The information should include impacts of a range of tion policy credibility by limiting the use of one-time tax rate decisions on diferent classes and sub-class- mitigation tools to exceptional circumstances. The es and non-residential taxpayer groups, such as re- pressure to re-use a one-time mitigation tool in con- tail, office and warehouses. secutive years should be resisted and interpreted as Affirm recommendations from City Council’s Tax the need for immediate implementation of tax policy Shift Assessment Working Group requiring the same reform. type of information for the indicative tax rate deci- Improve Targeting – Avoid using one-time mitigation sion before the approved tax rate decision. tools that are determined to be blunt tools during the Seek legislative and regulatory changes from the investigation and analysis process. Seek legislative provincial government where necessary, including a change, as required, for long-term tools that would date change for finalizing each property’s condition. improve targeting in Calgary’s ever-evolving econo- December 31 is currently the day to finalize the prop- my. erty condition. Educational Support – Provide information directly Key Message XXVI: Investigate a multi-year assess- to residents and businesses. Disclose taxation policy ment smoothing for tax policy update emphasizing in plain language. Explain the long-lasting efects of evidence from the 2015 to 2019 downtown tax shift one-time mitigation programs ahead of time, so tax- for a long-term policy response payers can better understand and anticipate chang- es to their tax bills. Recommendation #35: Given recommendation #26 to maintain the annual market value assessment process, in- Make exceptions for low probability, but high-impact vestigate a multi-year assessment smoothing for taxation (thin-tailed) events – The emergence of the COVID-19 policy update. If warranted, establish revisions to the policy pandemic in 2020 confirms that thin-tailed risks at- guidance for transmitting the results of annual market value tributable to once-in-a-lifetime events could arise. assessment into taxation. The goal is to minimize the chang- Incorporate flexibility to accommodate such thin- es in property taxes over time for individual taxpayers. To the tailed risks. Such thin-tailed risk events could require extent that averaging does not help with reducing volatility, continuous use of one-time mitigation. retain the current policy. To the extent that averaging does To address the need for adequate consideration for the help reduce volatility, seek legislative or regulatory approv- impacts on taxpayers, the Task Force recommended: als as required to implement the change. Key Message XXV: Revise steps in the process to en- Volatility Challenge – The rapid rate of change in Cal- sure that the assessment roll is completed before in- gary’s cyclical economy results in a high level of vol- dicative tax rates to deliver timely information to de- atility for non-residential property assessments and cision-makers taxes over a limited number of accounts (14,216 for the 2020 tax year). High volatility over a small base Recommendation #27: Address the misalignment where the contributes to the high level of activity in the com- approved tax rate decisions occur before information on the plaints process for non-residential accounts. Explore distribution of annual property assessments through the the extent to which reforms using smoothed assess- property assessment roll is available. ments rather than annual assessment would be ben- Develop and implement changes to processes for the eficial for the policy on yearly tax changes. assessment roll that would allow earlier information Compile Evidence –Gather evidence on assessment on the results of annual property assessment exercis- smoothing impacts relative to counterfactual two-
Financial Task Force | Report and Recommendations 41 C2020-0742 ATTACHMENT 3 Improving Tax Efficiency for Long-Term Fiscal Sustainability
year, three-year, and four-year rolling averages of annual assessments. The analysis should emphasize data for the 2015 to 2019 period. The analysis should consider a variety of averaging methods beyond the arithmetic mean. Generate Options – Assess the ability of the two-year, three-year, and four-year rolling average options to minimize assessment fluctuations and, by extension, limit tax volatility. Taxpayer Support – Explore taxpayer support for changes by starting with the extent to which it pro- vides certainty. Then, extend to tolerance to sustain the practice not just when property assessment val- ues are increasing, but also when they are decreas- ing. Political Support – Deliver the results of the analysis to Council with recommendations for the period av- erage to apply for smoothing property assessments over the long-term if averaging makes sense. Legislative Change – If averaging is beneficial for re- ducing volatility, and the decision is to proceed, seek legislative or regulatory approvals. Use the evidence gathered to inform a business case alongside Coun- cil recommendations for provincial government con- sideration. Policy Review – Should the policy review get through the legislative change phase, complete a multi-year assessment and mill rate smoothing review for tax- ation policy. It should inform practices for long-term financial sustainability. Phased Implementation – If there is evidence of the ability to minimize volatility, apply a phased-in ap- proach to implementation to manage taxpayer ex- pectations over time. Including an assessment of im- pact through the transition.
42 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures . They . They 82 Prolonged Disruption: Health restrictions may disrupt Disruption: Health restrictions may Prolonged tax regular The an extended period. for our lives for be daunting the end of June would deadline at and most businesses. residents many problems. Cashflow: cash flow would help alleviate It early An statement Household/ Business Planning: for a planning window deadline provides of a later everyone. have Canada Municipalities across Pan-Canadian: models Deferral Tax Property various adopted typically last between 60-150 days (mostly 60-90 typically 60-150 days last between days). do to can pay that many Allows program: Opt-in/out to defer. for those who need an offset It provides so. temporaryCashflow:could help with of management program for the municipal deferral cash flow has already fiscal capacity:Province provincial Limited in taxes increase of previous a rollback announced commodity to and is in a difficult position due prices as well. City’s Opportunity the Province to demonstrate to adapt during ability changing/ to limited and tools It times. is an opportunitychallenging the City for government and Federal with the Province work to better ourselves these challenges and align through of government. with the other levels Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • • • • • • • Certainty due is will come when these obligations as to all parties.critical to Municipal portions of property more tax bills are and it is likely more than the Provincial, substantial this take on debt for Municipalities to for challenging kind of event. Resilience the Economic have to It be great would engage with the the City at level Force Task has put the Province that Recovery Board Economic together. Brief Description households and businesses to Apply lump-sum if the deadline gets extended for fairness, For TIPP an optional provide need to would you taxpayers, too. deferral provision): opt-in Option 1 (no explicit June 30 to property from Delay tax collection (e.g. (e.g. 31) with the 7% penalty also delayed August due to of title, a transfer starting 1). For September be paid as part need to would property of the taxes sale, transaction. TIPP): apply to provision, opt-in Option 2 (explicit or without interest 2 or 3 months for deferral Opt-in April-June. for TIPP payments It should apply to penalty. 2-3 months. extensionAn of the June 30 tax deadline by Create an opt. in/out for the Provincial deferral deferral the Provincial in/out for an opt. Create • • as deferrals schedule for payback a realistic Create quickly as feasible. 81 Support Universal Unique Some Unique Delay Delay Collection Delay date effective penalties for Proposed Proposed Measures Municipal Property Tax Program Deferral • • Provincial Provincial Property Tax (opt-in) Deferral Provincial for backstop Municipal Property Tax Deferrals Property Tax Payment Schedule I. Tax Relief Measures Tax I. 01 02 03 04 Table 5: Overview of Financial Task Force Recommendations for COVID-19 Relief for Recommendations Force Task 5: Overview of Financial Table
Financial Task Force | Report and Recommendations 43 C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Some taxpayer subgroups would be affected to a be affected would subgroups Some taxpayer “small like the However, than others. higher degree discussion, the property tax business sub-class” relief. targeted for suited is not well system PTP), or a (e.g. wave another bow avoiding Consider at risk of or treatment preferential offering program some. by exploitation deny City should be able to The businesses, For businesses took that amounts back any or claw back the subsidy. pay of and had to advantage not it should benefit those in need, individuals, For population. the entire property in 2021 anticipated tax increase A significant businesses when they are more for spell failure may re-open. the odds about whether to weighing If re-open, a lot of businesses fail to then a smaller number of businesses city-wide significantly tax portion, split the non-residential to and will have in considerably increase would taxes non-residential 2021. Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • • • • • about 3,000 businesses and represent (15) BIAs Fifteen previous from Evidence in Calgary. 55,000 employees in North disasters and economic America physical be the first business districts would to BIAs suggest that recovery a better this and will likely have from emerge or stalls begins if recovery So, than non-BIA areas. rate small business affect city-wide may that in the BIAs, re-opening suit follow to in whether or confidence closing. Some will need relief beyond deferrals. beyond Some will need relief a program: administering for the potential Explore by burden administrative (a) without significant meeting specific criteria. and (b) application, It and provide the number of applicants reduce would need. necessary those in greatest to relief with the Federal coordination It require would post-crisis assessments. for government COVID-related be linked to individuals – it could For to EI eligibility. and tied layoffs if eligibility gets linked work businesses – it could For receive to eligible found apply and are those that to subsidy. the wage Brief Description • • • • • be necessary those could for Program Tax A Phased outbreak survivebusinesses that the COVID-19 beyond in the next risk at of failure businesses are because many months. few 2020 levy City’s The of the shortfall in forgiveness The in the BIAs get billed to ordinarily collection would that collection affect the viability Levy could 2021 as a relief. of businesses. Support Strong Unique Unique Unique Proposed Proposed Measures Approach Approach Property Tax and Rebates with Abatements extreme caution Municipal property tax rebate if work would coordinated with Federal government 2021 Tax Phased Non- for Program residential 2021 BIA Tax Relief 05 06 07 08 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
44 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Exhaust economic relief measures for the municipality for measures relief Exhaust economic funding requirements education provincial Lower laid-off/ educators, due to workers (i.e. furloughed administrators) activity:Sustain economic market In economy, a free ‘business as unusual’ possible and where innovation and honoured. be celebrated needs to on dependence The on government: reliance Less support the business to government can be pivoted the drive it usually does to community doing what economy. Calgary that Municipal leadership: Affirmation is a and a can-do enterprise of free shining example spirit. Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for be much higher would the default rate is a risk that There than expected. • • • • • Promote normal, appropriately distanced essential essential distanced appropriately normal, Promote estate). real (including for business interaction conduct to open and continue Keep the outdoors the Calgary ensuring that business, business personal safety. community accommodates online and no-contact through Innovate delivery to Calgary that open to businesses are demonstrate needs. serve Calgarians’ Brief Description ability be able The of some individuals and businesses to shocks and be able withstand the ongoing economic to property in the fall of 2020 is their deferred taxes pay to very low. consider to Examine the ability of the Province services essential delivering when cash-strapped water. fire, police, e.g. municipalities can no longer, earmarked layoffs from likely has dollar savings Province programs relief COVID provincial for • • • Support Unique Unique Some Unique Proposed Proposed Measures Program to to Program for prepare unusually high property tax default rate the following deferral General with Advocacy on the Province behalf of City Engage Province provincial for education property tax reduction with Work Provincial on Authorities Designated Essential Business Activity 09 Measures II. Advocacy 10 11 12 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
Financial Task Force | Report and Recommendations 45 C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Federal relief is limited: The Federal Government has Government Federal The is limited: relief Federal including the of cash relief, forms various announced Emergency(CERB) and a Canada Response Benefit benefits will These employers. subsidy for 75% wage decline in the massive but they do not offset help, faced. have most companies revenue Double-whammy Calgary: for oil prices Plummeting for difficult makes this extremely and COVID-19 Calgary. in and non-profits businesses, residents, Opportunity:Advocacy and the front at are Cities Do not lump big cities with others. of the crisis. centre Municipal be property alone would tax deferral insufficient. getting businesses kick-started the for Use following crisis. get back on their feet to Help enterprises Support start. to new enterprises out of a bunch of people potentially will have We financial supportwork, so providing to start new back old ones will be critical. businesses and bringing often left and small businesses are Citizens website on the find this information to scrambling and panic. is causing some confusion that and support webinars for providing Consider or struggling and help them pivot are businesses that and employment operations maintain online to move civic partners). for (include a role Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • • • • • • • • • Many businesses were under vulnerable financial under vulnerable businesses were Many COVID-19. before even circumstances all companies for revenue sudden and drastic The is facing a liquiditymeans nearly every company need cash. companies Incrisis. other words, that cash, pursue measures City cannot give The the hands of limit some money leaving would backstop: businesses and get federal residents/ in some public transportation in place already Free jurisdictions City? The about What parking AHS, at Free if debt and municipal debt, both provincial Consider possible. with the align that on only those enterprises Focus CED (i.e. by Calgary vision as presented long-term via OCIF or allocated Calgary in the new economy), some other means. out of this with come we Ensure on the future. Focus the COVID as possible once as much momentum passes. situation just not in a position small businesses are Many debt with their homes already take on more to cards and with lines of credit/credit leveraged and federal provincial Although gasping. already needs forgiveness debt limits, have coffers consideration. are governments and provincial federal The boost to out new programs rolling continually setting City should consider The activity. economic get more people can call to up a helpline where the right resources. to and get directed information Opportunity City staff and their skill leverage to sets of other levels and businesses access help citizens to support help. government and non-profit Brief Description • • • • • • • • • • • Support Some Some Some Proposed Proposed Measures Federal Explore Backstop Liquidity for Support to Individuals and Businesses with Work Province and Federal governments on a Financial incentive/ loan interest-free program City Leverage to resources link citizens/ businesses with the help from various Federal and Provincial resources available 13 14 15 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
46 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Other orders of government are rolling out mortgage rolling are Other of government orders lines. on the front but cities are programs, deferral the short-term. helpful for Over an are Rent deferrals for better work subsidy would a rent extended period, renters. earners and young low-income questions is often not clear—more Communication in some cases. than answers City tax collectors supported where example The of holders with other sources account deficient support compelling. was City as The of the reputation control, cost Without It may taking is in jeopardy. approach a balanced the COVID-19 the outset where not be the case at however, other considerations; outweighs concern in be evaluated it would ebbs, as the situation retrospect. Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • run to be allowed need to city’s that Some argue might with the the governments However, deficits. operating and provincial federal the best ability incur deficits are to governments. • • City as The of the reputation control, cost Without It not may taking is in jeopardy. approach a balanced concern the COVID-19 the outset where be the case at as the however, other considerations; outweighs in retrospect. be evaluated it would ebbs, situation • Advocate for a requirement that landlords who seek landlords that a requirement for Advocate type of a consistent provide mortgage to deferrals a proportionate amount period, (e.g. tenants to relief relief). rent of interest/ crisis/ a long-term subsidies for rent for Advocate a short-term for emergency. deferral Support negotiate the table to to getting landlords of rent. some forgiveness How City initiatives. for Need clarity on the following Under what do I pay? When City? The much do I pay or Grant? Deferral terms? services consider can or should that vendors, For scaled back during this period of get reduced/ distancing. that those with deliverables identify contractors, For that provisions of god” “act or majeure force have deliver. to having City from The relieve may Brief Description • • • City of CalgaryThe is a very need for real There alongside other Alberta both appeal to municipalities to Grant help. for governments and provincial the federal than the ability run better to work would programs deficits. • implement/ and seen to implement City needs to The It means measures. control and cost both relief review and stimulus while also looking relief to providing costs. reduce • • Support Some Unique Unique Some Unique Proposed Proposed Measures with Work the Provincial and Federal on governments the Mandated relief rent programs Emergency grant program transfer supported by the Provincial and Federal governments City Communication Services: Increase supply meet higher to demand City Resource Need for Use: General Cost Control City Resource Vendor/ Use: Contractual Obligations Review 16 17 III. City Services and Resources 18 19 20 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
Financial Task Force | Report and Recommendations 47 C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Scaling back would allow the furlough or lay off the furlough or lay allow Scaling back would to make. be a difficult decision which may employees, It Scaling on City back eases the strain cash flows. re-directs the Federal the issue of lack funding to receive to then be eligible as individuals would level uncertainty it creates and reduced EI. Unfortunately, individuals). for or no income assist temporarily. city to Redeploy workers out word could get the staff Communications at newly work could for closed locations staff Facilities or supervise organize to locations set up shelter clean, etc. there, individuals staying Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • of the delay understand the need for would Calgarians alternative appreciate they would well, As such projects. supportive of whether they are uses of funds regardless of the projects or not. • • • it is worth shift If assume a fundamental in the future, we of out the availability ability point to exploring Calgary’s distancing greater accommodate to space lots of office work.at Identify City services that could be considered non- CityIdentify services be considered could that can be scaled back and those that essential hours, reducing include: transit Examples could park picnic garbage collection less frequent, road maintenance regular bookings not available, centres recreation repairs, reserve funds and other available up committed Free obligations dollars from or either a deferral It happen through could contractually where of obligations cancellation possible know E.g. major capital projects. some well are There There Arts Commons. BMO, Centre, Event Line, Green be others. could Support social supports need/ demand for increased run the risk of overwhelmingthat the system (volunteers) dollars or people because of insufficient needs promptly. address to publicize to with communityPartner organizations Examples communityCity efforts channels. through advertising organizations (a) Calgaryare: Foundation Cares ATB and (b) donations; in need and accepting donations matching Brief Description • • • • • • • in arrangements office revisit to have Businesses would out more including spacing workers world, a post COVID of social distancing. some level maintain to Support Unique Some Unique Unique Proposed Proposed Measures City Resource Review Use: of ServiceLevel City Servicesfor City Resource Reallocation: applied to Existing City Funds City Resource Reallocation: applied to Existing City Staff and Facilities City Pitch: Explore positioning Calgary’s office available space 21 22 23 24 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
48 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Not business as usual: Calgarians expect layoffs from from expectNot business as usual: Calgarians layoffs “business as usual” under so do not operate City, The conditions. Minimize against additional people harm: Caution City should supportThe its savings. cost related meaningful employment providing by citizens opportunities times. these challenging through from savings Potential offsets: program Explore temporary finance could operations shuttered deferral. be a limit on the funding available would There each category funding a for and a cap on the total particular this program. from business can access re-directSuggest to this OCIF into funds set aside for program. the extra services have companies professional These either cancelled have of their clients capacity as many or put on hold their projects. that owners and restaurant hotels many are There are as a result, make ends meet and, struggling to are closing down. local hotel and meals from additional rooms Secure It during this time. owners would and restaurant unable who are of all citizens take care we that ensure expenses. basic living afford to Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • • pick winners and losers in a crisis. not to Be careful • • • • • Investing in online and e-commerceInvesting activities development and professional Training projectsSupporting transformation digital services expert Receiving professional from advice to etc.) SAP, Deloitte, McKinsey, (Accenture, firms the business for solutions for suitable digital develop quick implementation. is there During hardships, times of economic turn number of people that an increased generally housing and securing meals. city facilities for towards people, also some of the most vulnerable are These and those facing children, seniors, in addition to health challenges. mental homeless for of locations the expansion Consider see the to (happy of abuse shelters and victim’s a temporary used for drop- centre convention TELUS site) in centre Brief Description discretionary/Identify non-critical services. to Limit costs as follows: services.essential savings Apply from savings all potential realize Option 1: Seek to program the deferral offset to operations shuttered through savings cost any through Option 2: Pass and businesses (not residents to temporary layoffs prescriptive). in affected adversely Retail and hospitality sectors were property aftermath. Commercial owners the immediate by the in Calgary and homeowners also affected are crisis. businesses and to medium-sized to small grants Offer online, to boost their digital, organizations non-profit from can come These and e-commerce capabilities. such as: ways, different several • • • • • • Support Strong Unique Unique Some Proposed Proposed Measures Business Income Support: Designated ServicesEssential The for City Business Income Support: for all (not some) Businesses Business Income Support: enhance to their digital capabilities Business Income Support: accommodation/ hospitality industry IV. Business Income Support Business Income IV. 25 26 27 28 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
Financial Task Force | Report and Recommendations 49 C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Many food delivery apps are already providing $0 providing delivery already food apps are Many they still However, delivery with minimum orders. fees also take a They the customer. to fee a system charge owner. the restaurant 20-30% cut from still are small businesses that It will help promote open, in particular and agri-businesses the local food no-contact safe, offering delivery who are pick-up and services of COVID as a result those unemployed Relief for bills reduce then be applied to could value rebate The forgiven charges payment late and any is likely easiest to Extending all residents to utility to but most detrimental cash flows implement, and Foundation LeftOvers such as the Non-profits, Bank, make use of idle citythe Calgary could Food as programs as well employed keeping drivers buses, basis running on an expanded Support the re-opening can that of some restaurants the food. provide Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for • • businesses for rates in water a ~3-4% increase was There 2019 to in 2020 compared the community. It ~$1MM into should contribute • • • • • Subsidize fees charged to customers from food food from customers to charged fees Subsidize and DoorDash apps such as SkipTheDishes ordering working City should consider The with payment Moneris). (e.g. companies technology system owners Support restaurant be subsidies to would goal The using services. for and the customer who are our local restaurants promote be to would struggling in this market. first will primarily be lower- unemployed Those earners income sources banks and other food Support food to access individuals or no income low, for Brief Description • • (water, in the utilityImplement rates a decrease for 2019 levels businesses to for recycling) wastewater, of the year. the remainder property for taxes, payment In delaying addition to to related payments deferring City should consider The penalties. transit fare and violations traffic of a statement individual provide It require could the CERB or other supportreceiving impacted but those significantly be for would target The implement. to challenging insecure to food distribute to with groups Partner individuals. • • Support Unique Unique Unique Unique Unique Unique Proposed Proposed Measures Business Income Support: for and food agri-business industry Business Income Support: Rollback Utility Rates Household Income Support: Delay in payment fines and for penalties: Household Income Support: Utility rebates Household Income Support: Utility payment deferrals Household Income Support: Security Food 29 30 Support Income Household V. 31 32 33 34 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
50 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 1: Recommendations for COVID-19 Relief Measures Identify programs with a stimulative effect for the effect with a stimulative programs Identify long-term. medium- to Events. CityIdentify Sponsored Calgary) Tourism capacity Utilize partners of Civic (e.g. business elsewhere to uncertaintyReduce relative the business for and fear stress and associated community a enact take longer to options that but have Identify effect. significant more regional for requirements Keep up with operating in multiple Canadian businesses with locations experience consistent a more Pursue municipalities. and ease in implementing. the organization across Summary Rationale for Anticipated Efficacy Summary Anticipated Rationale for support to Alberta program only real The families is the $2000 of income, which will only replace CERB, federal is no there year-end since which will be taxable at Nearlywithholding on the benefit. all of the business a time when our at or loans, deferrals are measures had a high debt load. businesses already and connection engagement Community between and business Community individuals is essential. building on ideas, can be self-stimulating, ecosystems and distribution of products and services.models, • • • • • • Staycation programs – coordinated discounts for for discounts – coordinated programs Staycation residents Shop local initiatives they what local businesses, highlight to Online focus and who their owners do and sell in the community, managers are. and events contests, promotions, City-sponsored hot chocolate YYC the be similar to could Events you crowds, large congregated Without festival. and restaurants visit many individuals to incentivize or week a burger similar to try Possibly new things. the best. for with voting pizza week calls with other city Get on conference Consider and learn about their ideas. administrations assistance leaders for their provincial they have how got enacted expeditiously. requests and what Brief Description In Alberta, the paucity of social supports given and households and Many collapse. oil price the combined resiliency the financial businesses do not have many or with a without income withstand the months to expect. we now that income reduced significantly Support and business groups community engagement their activities including promoting and in their aims, the Utilize letting individuals know is out there. what services Rainforest, of Calgary Development, Economic of Alberta,Business Council etc. Support local businesses through: • • • • • with other country-wide collaboration Explore municipalities • Support Unique Unique Unique Unique Proposed Proposed Measures Household Income Support: the for vulnerable Non- Short-Term Income Support (Household and Business) Medium- to Non- Long-Term Income Support (Household and Business) Coordinated Municipal Programs 35 SupportVI. Non-Income 36 37 VII. Coordination 38 Table 5: Overview of Financial Task Force Recommendations for COVID-19 (continued) Relief for Recommendations Force Task 5: Overview of Financial Table
Financial Task Force | Report and Recommendations 51 C2020-0742 ATTACHMENT 3 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions - - The second study reexamined the initial study reexamined second The 84 tions.” The second is the outcome of a 2016 study by KPMG commis KPMG of a 2016 study by is the outcome second The tions.” Toronto the City of sioned by “would give municipalities more autonomy to meet the demands for meet the demands for to autonomy municipalities more give “would as distortionsservices offset in local tax systems, and infrastructure, condi to local needs and changing respond as the flexibilityto well eight tools in the first paper and added three new ones into the mix new ones into in the first paper and added three tools eight descriptiona of provides below table The sixteenof tools. total a for and the Norththe tools applied. American jurisdictions they are where
- 83 Philadelphia’s Liquor Tax is a 10 per cent sales tax on every sale of liquor or malt is a 10 per cent retail Tax Liquor Philadelphia’s USD 60.5 Established in 1995, it raised exceptions. with few beverage and brewed million in 2015. volume. per unit amount is levied as a fixed Tax Beverage Alcoholic D.C.’s Washington, beverages. types of alcoholic to different apply rates tax Different tax is The beverages. sell alcoholic businesses that applies to Tax Liquor Chicago’s the supply chain. and collected through the end purchaser applied to it is a 10% tax Currently, than 80 years. City more has had the authority of Regina The for fee. as an administrative the theatre by with 1% retained theatres movie on commercial $709,000 in 2018. was Actual revenue Exhibition. Actual City of Saskatoon levies the tax on Prairieland The currently $68,200 in 2017. was revenue on cinema ticket Tax Entertainment Funding levies a 10 per cent Winnipeg City of The True Goldeyes, Winnipeg the to refundable are tax revenues The of $5.00 or more. prices City. The with agreements based on their long-term club, Football Winnipeg North, and for tax on the admission fee amusement a 5 per cent City charges of Philadelphia The $19 million in tax generated amusement The in Philadelphia. amusement any attending in 2015. revenues tax on admissions at amusement 4.76 per cent charges City of Pittsburgh The service or refreshments, paid for on the price and 10 per cent venues, amusement garden, roof any is conducted at or amusement “entertainment when merchandise is wholly or in part the charge where included in the or other places cabaret club, night USD was tax revenue Amusement service or merchandise.” refreshments, paid for price fund tax revenues). general of the City’s 17.8 million in 2019 (or 3 per cent effective of 2.3 per cent a rate tax at municipal amusement City charges of Phoenix The January 1, 2016. a wide range paid for tax on charges amusement City of Chicago levies 9 per cent The or shows, performances, presentations activities, including: exhibitions, of amusement USD was tax revenue amusement City’s The activities. entertainment or recreational $195.5 million in 2018. Sample jurisdictionstools using the fiscal • • • • • • • • • • Description Alcoholic beverage taxes generate generate taxes beverage Alcoholic placing a product-specific by revenue and can take tax on the sale of alcohol such as a sales tax at a variety of forms, volume-based a of sale, the final point consumers tax embedded in the price or as a direct mark-up. pay Entertainment tax is a and amusement and consumption sales tax applied to goods paid for the price by measured or services. It has also been used to admission prices amusement Revenue Revenue source Alcoholic Alcoholic Tax Beverage Entertainment and Amusement Tax 1 2 Table 6: Overview of Some Alternate Revenue Sources or applied in North considered American Revenue 6: Overview jurisdictions of Some Alternate Table The outcome was a suggested mix of 13 fiscal new tools for cities that that cities for tools new fiscal 13 of mix suggested a was outcome The Revenue Sources in Other NorthRevenue American Cities North for American munici sources revenue of alternative matter The - City Adminis consideration. active thorough and received has palities studies comprehensive in identified two the list of tools shared tration first is a The Force. Task the discussion with Financial facilitate to of Alberta. the Government by 2006 discussion paper commissioned
52 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions . 86 . 85 In Quebec, owners of passenger vehicles registered within most large cities are required required cities are within most large registered of passenger vehicles In owners Quebec, the It by public transit. to is collected centrally an additional annual contribution pay to municipalities. to and distributed province Vehicle a Commercial 2020, the Union of BC Municipalities (UBCM) administered Before and local governments. government on behalf of the BC provincial program Licensing Victoria, and Vancouver cities of The 31, 2019. ended on December program The January effective Starting 1, 2020. programs replacement their own introduced have Vancouver, and lanes in the City of loading zones January commercial access 1, 2020, to a City-issued decal. will require vehicles commercial or locally the state through either centrally States tax is also levied in cities 27 U.S. The collect the states City, York and New In cities such as Nashville their counties. through the in cities such as Chicago and Dallas, whereas on behalf of the city, taxes the vehicle only their portion municipal offices. directly at city of the fees receives or county parking a new parking paid off-street In introduced tax for 2010, the City of Montreal of the parking based on the location rates facility in the city and facilities with graduated whether it is indoor or outdoor. parking of In is the fourth-highest the city source sales tax today of Pittsburgh, tax. Revenues after property preparation revenues tax, and payroll tax, earned income of USD 56 million in 2019 (or 9.5 per cent at estimated parking were from sales taxes revenue) total Pittsburgh’s The parking sales tax in Los Angeles was introduced in 1990. It stable has remained introduced parking was Angeles The sales tax in Los are generated Revenues and is based on all parking 10 per cent at lot revenues. USD 85.4 million approximately The city of Seattle levies a commercial parking tax that is added to the fee drivers pay to to pay drivers parking city the fee The of Seattle levies a commercial is added to tax that parking commercial lots. park in Seattle’s Sample jurisdictionstools using the fiscal • • • • • • • are In there Canada municipalities. or by level the state tax can be collected either at The a considered is roundly as tobacco However, the local level. at taxes no tobacco currently fund public to tax it heavily States in the United local governments harmful many product, and Chicago. City, York New Philadelphia, D.C., Washington, cities include These services. Description The motor vehicle ownership ownership vehicle motor The tax is an annual registration owners to be charged would that and mopeds if motorcycles, of cars, in a are addresses their registration municipality A parking tax is typically implemented either as a parking ways: in one of two sales tax or as a parking levy. space Tobacco taxes are levied through the levied through are taxes Tobacco to affixed are of stamps that purchase individual packages or of cigarettes licensed paid by are They small cigars. distributors) wholesalers, (e.g., agents the distribution of the tobacco before locations. retail products to Revenue Revenue source Motor Vehicle Motor Vehicle Ownership Registration Tax Tax Parking and Parking Sales Tax Tobacco tax Tobacco 3 4 5 Table 6: Overview of Some Alternate Revenue Sources or applied in North considered American Revenue 6: Overview jurisdictions of Some Alternate (continued) Table
Financial Task Force | Report and Recommendations 53 C2020-0742 ATTACHMENT 3 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions . 92 . 87 90 . 91 Some Canadian municipalities levied income taxes before World War II, but they have II, but they have War World before taxes municipalities levied income Some Canadian 1941. do so since to not been allowed The City of Vancouver applies a 3 per cent Municipal and Regional District Tax (“MRDT”) Tax Municipal District and Regional applies a 3 per cent Vancouver City of The initially was program MRDT The sales of short-term in the City. to accommodations and programs marketing, local tourism for revenue in 1987 and raised introduced by administrated sales tax on behalf of municipalities, is a provincial MRDT The projects. the BC government. municipal marketing levy a 2 per cent City on hotel of Halifax charges The the collect and remit the levy customers operators from Hotel accommodations. Municipality). Halifax Regional the municipality to (i.e., amount room hotel to of 5.875 per cent Tax Room City Occupancy applies a Hotel York New York the New and then collected by operators hotel tax is collected by The occupants. be USD to estimated tax are hotel the city’s from Revenues City Department of Finance. year 2020. 628 million in the fiscal of occupancy transient tax on the rental imposes a 14 per cent San Francisco occupancy transient tax is also The of less than 30 days. stays for accommodations and (such as Airbnb) operators hotel tax is collected by The known tax. as the hotel the City to and remitted short-term hosts or sites rental There are two broad options for applying a municipal personal income tax: a tax on applying a municipal personal income options for broad two are There Limiting only. income employment or a tax on residents’ taxable income, total residents’ if the tax revenue is desirable, income employment tax to a municipal personal income a that environment with the economic associated the municipal costs compensate is to city build. helps to City levy and Philadelphia tax on both a local income York only New in the U.S., Currently individuals and businesses In 2019, personal income taxes were imposed by 4,964 local taxing jurisdictions imposed by across were In taxes 2019, personal income in Rust Belt states with a heavy concentration in the U.S., 17 states • Sample jurisdictionstools using the fiscal • • • • • • • . A practical way to levy to . A practical municipal way A hotel tax is a imposed A hotel in commercial staying on any such as a hotel, accommodation, It is collected as and Airbnb. motel, of a room of the cost a percentage sold. night 88 89 income tax in Canada is to piggyback is to tax in Canada income with a tax system income on the federal agreement municipal tax management with the CRA. Description • Municipal income tax includes personal Municipal income income tax and corporate income tax Full access to property taxes, whereby whereby property to access taxes, Full the educational exit to the province portion of property it to tax and leave municipalities. Revenue Revenue source Tax Hotel Municipal Income Tax Property Taxes 6 7 8 Table 6: Overview of Some Alternate Revenue Sources or applied in North considered American Revenue 6: Overview jurisdictions of Some Alternate Table
54 Financial Task Force | Report and Recommendations C2020-0742 ATTACHMENT 3 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions Sample jurisdictionstools using the fiscal municipalities do not levy while Canadian municipalities levy fuel taxes, U.S. Many with their share municipalities and regions Canadian A few municipal fuel taxes. the provincial In programs, these tax-sharing fuel tax revenues. in the provincial provinces municipalities or it to and remits collects the revenue, sets the tax rate, government the from grants provincial receive Calgary currently example, and Edmonton For regions. sharing program the revenue While cities. collected in the two fuel tax revenue provincial a further for the would be benefit municipal self-reliance, toward first step is an excellent authority levy to such a tax while still municipalities with the legislative provide to province fuel tax systems. piggybacking on provincial host casinos and that with local governments gambling revenue shares In BC, the Province $96.8 million to distributed In 2016/2017, the Province in B.C. community gambling centres host local governments. some In in Canada. the U.S., taxes premium no municipal insurance are there Currently, tax. the state be added to tax, which would impose a premium municipalities may mining and forestry revenues share to has agreements Government the Ontario Currently, with Indigenous communities. Description tax is a sales imposed on the Fuel the funds are Frequently, sale of fuel. transportation to or roads, dedicated the fuel tax a people consider so many user fee. can be considered Gaming revenue a tax on gaming activities. Similar to it is fair if taxes, and tobacco alcohol fund the used to are such revenues and social police demand for increased gaming activities. to services related collected are taxes premium Insurance in governments the provincial by levied originally were They Canada. the to related fund the costs to industry of the insurance regulation Most of programs. and public safety now are programs the public safety of the municipalities, the responsibility the portionreturning of these taxes fund levied to originally were that be considered could programs safety and of responsibilities a realignment funding. of Alberta a derives Province The proportionrevenues significant of its royalties The royalties. resource from of the value based on the total are extracted during the year. resources Revenue Revenue source Tax Fuel Gaming Revenue Insurance Taxes Premium Resource revenues 9 10 11 12 Table 6: Overview of Some Alternate Revenue Sources or applied in North considered American Revenue 6: Overview jurisdictions of Some Alternate (continued) Table
Financial Task Force | Report and Recommendations 55 C2020-0742 ATTACHMENT 3 Annex 2: Overview of Municipal Revenue Tools in Other Jurisdictions . 96 . 98 . It was budgeted at USD 1.456 billion in 2020 (or 2.3 per cent of . It USD 1.456 billion in 2020 (or 2.3 per cent at budgeted was 95 The City’s total budgeted revenue). revenue). budgeted total City’s The (RPTT)Tax of $3.75 per the rate at Transfer City of Chicago imposes a RealThe Property property of the real or the beneficial or fraction thereof, price, $500.00 of the transfer of $1.50 per $500.00 the the rate tax at a supplemental Also, property. in real interest taking on or after April place imposed on transfers was or fraction thereof, price, transfer Authority (“CTA”) Transit to the Chicago financial assistance provide 1, 2008 to Currently no municipality in Canada can implement a municipal sales tax. The City of The a municipal sales tax. no municipality can implement in Canada Currently sales a 0.5 per cent for holding a referendum do so in 2015 by to attempted Vancouver of it failed with 62 per cent However, projects. infrastructure fund the local transit tax to collected in 38 are local sales taxes in the U.S., against the tax. Currently voting residents rates state exceed or even they can rival In some cases, states. a percentage rate on land value at the time of development; the time of development; at on land value rate a percentage based on location; the time of development at on land value a variable rate based on the expected land value the time of development at on land value or a rate appreciation. tax (MLTT). applies a municipal land transfer Toronto City of The (RPTT) Tax grants, on sales, Transfer has a Real Property York City of New The must also Taxpayers property of real or surrenders in the city. transfers assignments, in a corporation, of ownership RPTT least 50 per cent of at pay the sale or transfer for property of cooperative or other entity owns/leases trust, partnership, that and transfers shares housing stock Sample jurisdictionstools using the fiscal in North the municipal level It tax has not been levied at This American cities. is currently Milan Stockholm (Italy), (U.K), (Sweden), and Singapore levied in London • • It can be applied based on one of the following rate structures: rate It can be applied based on one of the following • • • As or MLTTs. charges with development levy be seen as overlapping could A development levy not observed was the use of development in North American cities. of today, • • . 94 97 in Calgary) a that 93 A municipal general sales tax A municipal general and non- residents applies to It who shop in the city. residents tax non-residents permits cities to who use local services. A development levy is to capture a levy capture is to A development portion the at of gains in land value, It is different time of development. charge the development from levies (off-site means of pooling fund from many many means of pooling fund from capital off-site for pay to developers projects which benefit them all A municipal land transfer tax (MLTT) A municipal land transfer is levied option that is a revenue or sale of a the time of purchase at home. residential • Description Road pricing includes road-related tolls, such as road and charges taxes to (sometimes referred charges cordon user and vehicle charges) as congestion fees. • • Municipal Sales Tax Revenue Revenue source Road pricing Development Levy Municipal Land Transfer (MLTT) Tax 16 13 14 15 Table 6: Overview of Some Alternate Revenue Sources or applied in North considered American Revenue 6: Overview jurisdictions of Some Alternate (continued) Table
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1. Examples of enabling services include managing city 19. Guidelines are accessible here: https://www.alberta. facilities, information techncology and human re- ca/municipal-property-assessment-legislation.aspx- sources. Other services include social programs and #toc-3 services, the environment, building and planning 20. S. 22 MRAT, permitted by s. 322(1)(h.1) of the MGA. services, information and communication, and tax and property ssessment. 21. Alberta Municipal Affairs. Detailed Assessment Audit Manual. Edmonton, AB, 2016. Page 1. 2. S. 360 of the MGA 22. Specifically, the Alberta Assessment Quality Minis- 3. City of Toronto (June 2, 2010) “Potential Monetiza- ter’s Guidelines. tion of City Assets” 23. In 2019, the Industrial property roll underwent a de- 4. Australian Government Treasury (January 2019) “Re- tailed and thorough provincial audit. view of the national partnership agreement on asset recycling” 24. Alberta Municipal Affairs. “Guide to Property Assess- ment and Taxation in Alberta,” 2018. https://open. 5. Recently governments use Smart City initiatives alberta.ca/dataset/bda2413d-1f6b-41a2-ae2d-6af- to harnessdigital revolution innovations to better 8cbda1bc9/resource/f6c0b75b-8fc6-4e81-aad1- servce citizens. 73ef2f1e7731/download/guide-to-property-assess- 6. S. Gandhi, B. Thota, R. Kuchembuck, and J. Swartz ment-and-taxation-in-alberta.pdf. Page 16. (Nov 2018) “Demystifying data monetization” MIT 25. See s. 460 of the MGA. Sloan Management Review 26. See s. 468 of the MGA and MRAC. 7. Joseph E. Stiglitz, Peter R. Orszag, and Jonathan M. Orszag (Oct 2000) “The role of government in a dig- 27. See s. 470 of the MGA. ital age” 28. As per s. 289(1) of the MGA. Some small municipal- 8. European Data Portal website: https://www.europe- ities in Alberta contract assessment duties out to andataportal.eu/en/about/european-data-portal third parties. 9. National Economic Council and Office of Science 29. See ss. 284(1)(f.01) and 292(1) of the MGA. and Technology Policy (October 2015) “A strategy for 30. Discussed further in Property Taxation in Calgary. American Innovation” 31. NM 2017, September 11, Combined Meeting of Council 10. Open Data Exchange (ODX) 32. Copy of Notice of Motion found here: https:// 11. Open Calgary https://data.calgary.ca/ pub-calgary.escribemeetings.com/filestream.ashx- 12. The 2019 Annual Report for Calgary Parking Author- ?DocumentId=70246. ity was not available by the time this report was fi- 33. Page 22 Heuristic Report. nalized. 34. Page 22 Heuristic Report. 13. Alberta Municipal Affairs.Guide to Property Assess- 35. Report of the Subcommittee on Fiscal Imbalance ments and Taxation in Alberta. Edmonton, AB, 2002. (June 2005) “The Existence, Extent and Elimination of Page 4. Canada’s Fiscal Imbalance” 14. Alberta Municipal Affairs.Guide to Property Assess- 36. Own-source revenue = total revenue – current trans- ments and Taxation in Alberta. Edmonton, AB, 2002. fers from general governments – capital transfers Page 5. from general governments; For municipalities, their 15. Alberta Municipal Affairs.Guide to Property Assess- own-source revenues mainly include property tax ments and Taxation in Alberta. Edmonton, AB, 2002. and user fees. Page 5. 37. Own-source expenditure = total expenditure – cur- 16. See s. 289(2)(a) and s. 292(2.1) of the MGA. rent transfers from general governments – capital 17. S. 1(k) MRAT. transfers from general governments 18. Regarding farm land, see ss. 7(1) and 7(2) of MRAT. 38. Net lending (or net borrowing) = Surplus (or defi- Regarding designated industrial property, see s. cit) + Consumption of fixed capital – Non-financial 284(1)(f.01) of the MGA and ss. 10-13 of MRAT. capital acquisition. If the calculation is positive, the
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government has a net lending fiscal position. If the 52. Additional Property Tax and Legislative Change Op- calculation is negative, the government has a net tions to Support Businesses borrowing fiscal position. 53. A 2018 City of Toronto report outlined options to 39. Brookfield Place, Telus Sky, Eighth Avenue Place II, alleviate tax distortions arising from the application etc. of “highest and best use.” One option was taxing 40. Machinery and equipment refer to the mechanics non-residential properties according to their current necessary for industrial processing. A tax on machin- actual use, rather than the market value of the fee ery and equipment is effectively a tax on industrial simple interest (like what exists in Alberta). The com- properties used for processing that is applied in ad- mitment of The City of Toronto was to approach the dition to non-residential property taxes. Since ma- provincial assessment authority (MPAC) to discuss chinery and equipment are not subject to provincial the proposed idea. education tax, the decision to tax it primarily exists at 54. In 2019, The City of Vancouver proposed changes the municipal level. Like Calgary, Edmonton does not that would lower the tax responsibility for low-den- tax it, the surrounding counties of Rocky View and sity commercial operations in high-density locations Foothills do. Given the re-distribution of non-resi- by taxing unused “air space” (allowable density be- dential property tax responsibility away from down- yond the existing building) at residential rates rather town, the industrial sector has experienced a sub- than commercial. This aligns with the common de- stantial increase in tax in recent years. Machinery and velopment in Vancouver where high-density resi- equipment as an additional tax could greatly impact dential buildings have main floor retail or office use. affected businesses. 55. Amanda Sinclair (May 3, 2019) “Measuring digital 41. S. 297(1)(a) of the MGA. economic activities in Canada: Initial estimates”, the 42. City of Calgary, Bylaw Number 24M95. National Economic Accounts Division, Statistics Can- ada 43. As per Report FB2003-15, the Committee found that the split tax rate was inequitable and counterpro- 56. BEA (Mar 15, 2018) “Defining and measuring the dig- ductive for the following reasons: 1) the taxes paid ital economy” on multi-residential properties are borne by the ten- 57. BEPS Actions https://www.oecd.org/tax/beps/ ants, rather than landlord; and 2) landlords moved to beps-actions/ avoid the higher tax rate by condominiumizing their 58. The Task Force on the Digital Economy (TFDE) is a sub- apartment buildings. sidiary body of the Committee on Fiscal Afairs (CFA) 44. “Operating under a business licence or that is other- in which non-OECD G20 countries participate as wise identified in a municipal bylaw” as per s. 2(3) of Associates on an equal footing with OECD member MRAS. countries. 45. S. 2(3)(b) of MRAS. 59. OECD (2015) “Addressing the Tax Challenges of the 46. See City of Calgary Report PFC2019-0559 for more Digital Economy, Action 1 – 2015 Final report”, OECD/ information on MRAS. G20 Base erosion and Profit Shifting Project, OECD Publishing 47. Ministerial Order No. MAG: 017/192019 Recording and Reporting Information for Assessment Audit and 60. At the Ottawa Ministerial Conference on Electronic Equalized Assessment Manual Commerce, leaders from governments (29 member countries and 11 non-member countries), heads of 48. https://www.toronto.ca/services-payments/prop- major international organizations, industry leaders, erty-taxes-utilities/property-tax/property-tax-rates- and representatives of consumer, labour and social and-fees/?=property-tax-rates interests discussed plans to promote the develop- 49. https://vancouver.ca/home-property-development/ ment of global electronic commerce. Ministers wel- tax-rates.aspx comed the 1998 CFA Report “Electronic Commerce: 50. https://ottawa.ca/en/property-tax-information Taxation Framework Conditions” (OECD, 2001a), and endorsed a set of taxation principles, known as Otta- 51. https://www.hamilton.ca/sites/default/files/media/ wa Taxation Framework Condition, which should ap- browser/2019-06-10/2019-final-tax-rates-v4.pdf ply to electronic commerce.
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61. Under the destination principle, tax is ultimately lev- 77. https://vancouver.ca/home-property-development/ ied only on the final consumption that occurs with- why-an-empty-homes-tax.aspx in the taxing jurisdiction. Under the origin principle, 78. The City of Vancouver, “Empty Homes Tax Annual Re- the tax is levied in the various jurisdictions where the port” value was added. 79. https://winnipeg.ca/History/CityGovernment.stm 62. Rudy Telles Jr. (June 2, 2016) “Digital matching firms: a new definition in the ‘Sharing Economy’ space”, 80. http://winnipegassessment.com/AsmtTax/English/ Economics & Statistics Administration, U.S. Depart- Other_Taxes/TocOtherTax.stm ment of Commerce. 81. The The assessmentassessment ofof thethe levellevel ofof support occurred be- 63. Toronto PTC fore discussing the consolidated input with the Fi- nancial Task Force. There are four levels of support. 64. The City of Edmonton: Vehicle for hire bylaw 17400 (1.) Unique – proposed by one Task Force Member; 65. Asia Pacific Foundation, 2019 Investment Monitor (2.) Some – proposed by about a third (1/3); s(3.) (see page 52). Strong – proposed by between half and two-thirds; 66. https://www.macleans.ca/economy/economicanaly- (4.) Universal – proposed by all Task Force Members. sis/the-winners-and-losers-if-alberta-returns-to-a- 82. https://www.equitablevalue.com/?p=1276 flat-tax-system/ 83. Alberta Minister’s Council on Municipal Sustainabil- 67. https://open.alberta.ca/dataset/05bd4008-c8e3- ity (May 2006) “Alberta’s Competitive Advantage: 4c84-949e-cc18170bc7f7/resource/79caa22e-e417- Empowering municipalities with new municipal rev- 44bd-8cac-64d7bb045509/download/budget-2020- enue sources” fiscal-plan-2020-23.pdf 84. KPMG (June 2016) “City of Toronto Revenue Options 68. Alberta tax advantage = the total additional provin- Study” cial tax and carbon charge that individuals and busi- 85. https://pittsburghpa.gov/omb/budgets-reports nesses would pay if Alberta had the same tax system and carbon charges as other provinces. 86. https://www.scpr.org/blogs/ news/2012/08/09/9349/audit-los-angeles-officials- 69. https://www.toronto.ca/services-payments/proper- dont-know-how-many-par/ ty-taxes-utilities/municipal-land-transfer-tax-mltt/ 87. https://sftreasurer.org/business/taxes-fees/tran- 70. https://www.toronto.ca/wp-content/up- sient-occupancy-tax-tot loads/2019/09/9655-SO-DS19-0220_2018FAR_Fi- nal_Web.pdf 88. In 2018, the total revenue of corporate income taxes collected in Alberta was $4.1 billion for the provin- 71. https://wx.toronto.ca/inter/it/newsrel.nsf/ cial government. With a 35.2 per cent employment d7b6a6e7139d8f7785257aa700636487/170a89b27 income share, a 10 per cent share of municipal cor- 1e68d4f852574b8004f498d?OpenDocument porate income revenue would have generated $144 72. https://www.cbc.ca/news/canada/toronto/toronto- million for The City of Calgary. councillors-kill-car-tax-cut-budgets-1.883783 89. In 2018, the total personal income taxes from Alber- 73. https://www.toronto.ca/services-payments/build- ta to the provincial government were $11.6 billion. ing-construction/sign-permits-information/third- With a 38.1 per cent share and assuming a 1 per cent party-sign-tax/ municipal personal income tax for Calgary’s benefit 74. City of Toronto staff report for action on Third Party would have generated $442 million for the municipal Sign Tax Review (May 16, 2017) “Status Update: Third government. Party Sign Tax” 90. Enid Slack (2004) “Revenue Sharing Options for Can- 75. https://www.toronto.ca/services-payments/proper- ada’s Hub Cities”, prepared for the Meeting of the ty-taxes-utilities/municipal-accommodation-tax/ Hub City Mayors 76. single-family residences, multi-family residences, du- 91. KPMG (June 2016) “City of Toronto Revenue Options plexes, apartments, condominiums, nursing homes, Study” seasonal dwellings, manufactured homes, some va- 92. Jared Walczak (July 2019) “Local Income Taxes in cant land, farm buildings and daycare facilities. 2019”, the Tax Foundation
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93. https://www.calgary.ca/PDA/pd/Pages/Commer- cial-development/Off-Site-Levy-bylaw.aspx 94. https://www.cip-icu.ca/Files/Resilience-2017-Pre- sentations/WOR-03-Development-Charges-Some- one-Has-To-Pay-But.aspx 95. https://www1.nyc.gov/nycbusiness/description/re- al-property-transfer-tax 96. https://www.chicago.gov/city/en/depts/obm/supp_ info/budgetdocuments.html 97. In 2018, the share of the city of Calgary’s consumer expenditure in Alberta was 34.1 per cent. A 1 per cent municipal sales tax wouldhave generated about $378.5 million 98. Janelle Cammenga (January 2020) “State and Local Sales Tax Rates, 2020”, the Tax Foundation
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