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HomeMy WebLinkAboutTR-84-94 f I THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT i Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE File# Date: October 3, 1994 Res. #_C��' � -1�11 By-Law# Report#:--T41-84 94— File#: Subject: FAIR TAX COMMISSION REPORT-IMPLICATIONS AND COMMENTS Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report TR-84-94 be received; 2. THAT the Province be notified that the Municipality is in support of the intent of the Fair Tax Commission Report, however, unless the recommendations are implemented consistently, the Municipality is concerned with the potential negative impact; 3. THAT the Province be notified that the Municipality has concerns regarding the hybrid education funding recommendation and the potential for further erosion of the municipal tax base, and as a result would recommend that the 10% education support recommendation be removed from consideration; 4. THAT the Province be requested to provide the Municipal sector with the same protection against negative financial impact as is provided the Province through the Commission's report; 5. THAT the recommendations dealing with Provincial control over property taxation be removed from consideration; 6. THAT since many of the recommendations are linked to the Province's disentanglement initiative, the Province be requested to provide clear direction on how it intends to proceed on these issues prior to the implementation of any of the pertinent recommendations in the report; and 7. THAT the Province be requested to notify all Municipalities to allow input before any final recommendations are implemented. i 101 E CYCLED PAPIER RP APED ECYCLE THIS 6 PRIMED CV.'RECYCLED PAPER TR-84-94 Page 2 BACKGROUND: 1.0 At the June 7, 1993, G.P.A. meeting, the Property Tax Working Group Report #TR-51- 93 was brought to the General Purpose and Administration Committee. Since that time, the Ontario Fair Tax Commission received comments and in December 1993, released its report entitled, "Fair Taxation in a Changing World". The report is in excess of 1,000 j pages and includes 135 recommendations covering all aspects of taxation in Ontario. 1.1 The recommendations are very far reaching and may have a significant impact upon every municipality Province wide. At the present time, the Province is still considering the recommendations and has not provided any indication as to how they will proceed. The recommendations that specifically affect municipalities are shown on the attached i Schedule "A", along with Staff comments and potential implications. COMMENTS: 1 2.0 The mandate of the Fair Tax Commission was to review the Ontario Tax System and to make recommendations to improve its fairness. They were asked to provide advice concerning design, as well as implementation of a more equitable tax system. 2.1 The Commission used what they termed, the benefit principle of tax fairness, as a guide in making their recommendations, whereby when a concrete relationship exists between the amount of tax paid and the benefits received, then the tax is perceived as fair. 2.2 The major recommendations relating to municipalities include removing education from the local tax levy by transferring responsibility to the Province, who will in turn increase personal income taxes to compensate. The Province would also assume responsibility for general welfare assistance and childcare programs and in turn reduce conditional and unconditional grants to municipalities. The business occupancy tax would be eliminated. The method for determining assessment values for properties would be changed and every property in Ontario would be reassessed. Property tax exemptions currently in place would be removed. The final major recommendation would allow the Province to levy a property tax on commercial and industrial businesses at a uniform rate across the Province. Please see Schedule "A" for a complete listing of recommendations impacting municipalities along with staff comments. 2.3 On an overall basis, the implementation of all of the recommendations could result in a fairer distribution of the tax burden. However, the recommendations are very far reaching and impact almost every aspect of the current municipal and provincial tax system. As a result, if the recommendations are not implemented consistently and in conjunction with one another, then the fairness objective will not be achieved. It is staff's opinion that the Province should be cautioned not to try to implement recommendations on a piecemeal basis or to implement only those of benefit to the Province. / U2 i TR-84-94 Page 3 2.4 The Commission's report appears to be lacking somewhat when it comes to implementation. There are very few recommendations relating to implementation and those are very general in nature. Recommendations of this scale should have included more consideration of the administrative problems associated with such major changes. An example of this is the reassessment of every property in Ontario that would be required by the recommendations. This would be a time consuming task that potentially would result in major tax shifts among property owners. This would be faced with a great deal of opposition. 2.5 From a municipal perspective, the recommendations transfer a great deal of municipal authority and autonomy to the Province. It also appears that if a recommendation has a negative financial impact upon the Province, a compensating recommendation is included. This is not the case for recommendations that have a detrimental impact upon municipal finances. 2.6 The greatest concern for municipalities is the degree of control over municipal operations that would be given to the Province as a result of these recommendations. The Province would have the authority to limit the amount of property tax increases while at the same time have the ability to tax commercial and industrial properties on their own behalf. The non-residential property taxes collected by the Province do not have to be earmarked even though in theory they are to be used to fund education. This means that the Province has a new untapped source of general revenue and can limit municipal tax increases in order to ensure that property owners are not overburdened. 2.7 The report also states that since the burden of education costs are lifted from municipalities, the amount of conditional and unconditional grants could be substantially reduced. This means that the Province would be downloading costs for a host of provincial programs while limiting the municipal property tax increases and reducing grants. 2.8 A final major area of concern is that although the education portion is to be removed from the residential property tax bill, the Commission allows for the school boards to still access up to 10% of their provincial funding amount from the residential property taxes. This is contradictory and allows for further future inroads into municipal finances during times of provincial fiscal restraint and also leaves open the potential for an increase above the suggested 10%. CONCLUSION: 3.0 Staff feel that although the Fair Tax Commission made a valiant effort in addressing current problems with our tax system, not enough emphasis was placed on the practicalities of how to implement the recommendations into a workable, understandable system. The Report also appears to make efforts to ensure that the Province is not detrimentally affected by the recommendations but Municipalities were not accorded the same treatment. i TR-84-94 Pa--e 4 3.1 The Report is currently under review by the Province. Any proposals regarding implementation should be closely reviewed to ensure that municipalities, and in turn their residents, are treated fairly. Respect lly submitted, Reviewed by, Marie A. Marano, H.BSc.,A.M.C.T., W.H. Stockwell, Treasurer. Chief Administrative Officer. MM/NT/hjl Attachments Interested parties to be notified: I 1. Gord Mill, MPP, Durham East 2. Michael Mendelson Co-Chair Ontario Canada/Ontario Infrastructure Works Management Committee 13th Floor 777 Bay Street Toronto, Ontario M5G 2E5 3. The Honourable Ed Philip Ministery of Municipal Affairs 17th Floor 777 Bay Street f Toronto, Ontario M5G 2E5 I I / U4 1 DN:NTFAIR.TAX ' ?` ..... . ? ii :.....sii >: ... .:...: F �NDATrN..........: ........................................ ............... ...... .... :. .... In�P F77 LTC�T'Z!QNS CO�VIiVIIrNT ............ Paying for Services: Property Taxes in a Fair Tax System I. The provincial government should assume responsibility for the funding of education to a This will alleviate the problems associated with differing qualities of provincial standard,allocating funds to school boards based on per student cost, student education based on the school board within which a student resides. needs, and community characteristics which affect eduction costs, such as poverty and This stems from the size of the property tax base in the board's language. jurisdiction. It will also stop the ongoing debate between public and separate school boards over access to the commercial and industrial property taxes. 2. Ontario should replace the local residential property tax as a source of core funding for Significantly different tax burdens being imposed on taxpayers in education with funds raised from provincial general revenues. different jurisdictions for provincially mandated education standards will be prevented. The Commission has taken the position that education should be funded based on ability to pay and the only logical means of achieving this is through the provincial income tax system. This will shift approximately$3.5 billion from residential property taxes to personal income taxes. 3. Ontario should eliminate the local education levy on commercial and industrial property. The Commission is of the opinion that non-residential property tax is both a general tax on business and a benefit tax for local services, (ie. it is related to the benefits received by businesses from local services). They feel that the portion relating to a general business O tax should be the responsibility of the Province similar to other U-1 business taxes such as corporate income taxes. The benefit tax portion should not be used to fund education because education is universally accessible,and therefore,there are not specific local beneficiaries. Public education offers benefits to society as a whole, as well as assisting in income redistribution by improving job prospects. Therefore,they feel it does not qualify for funding from a benefit tax. 4. Ontario should permit school boards to raise funds to support local discretionary spending This recommendation is contrary to those stated above. However, through a local levy on the residential property tax base. The amount of this local levy for the Commission is arguing that educational equity between students each board should be restricted to a fixed percentage- not greater than 10 per cent- of the requires different funding levels based on different costs and total amount of provincial funding provided to that board. educational needs based on the demographics of the student group. They feel that the purpose of this local levy is to meet these special needs that may not be recognized in the province's funding formula even through this may not support tax fairness. This is a dangerous recommendation because it creates the potential for future residential property tax"grabs" if the province decides to cut spending levels. Considering they wish to take away commercial taxation from the municipal level,access to residential taxes,as well would seriously erode municipal financial stability. »' 14 55. .'LATXNCPTS ........................................ Paying for Services: Property Taxes in a Fair Tax System 5. Ontario should assume full responsibility for funding general welfare assistance and This recommendation stems from the fact that social assistance provincially mandated services to children payments vary based on where you live. Social assistance should be provided on a consistent basis province wide. Both social assistance and children's aid societies,as in eduction,are not a local benefit and therefore,should not be funding from local sources. This issue was to be dealt with under the provincial-municipal disentanglement discussions. 6. a) To ensure that municipal governments do not eliminate property tax savings resulting Even though the Commission states that the local political process from reform in the funding of education and social services by raising municipal tax would prevent major increases in property taxes from occurring, they rates,those tax rates should be subject to provincial regulation during a transitional still include this recommendation. They state that there should be period. restrictions on property tax increases for a transitional period but do not define what they would consider as a reasonable length of time. b) Ontario should establish a base year municipal tax rite,which excludes taxes This recommendation is very damaging to the individual autonomy of attributable to services no longer funded from property taxes,and should limit municipal governments and is threatening to the democratic process municipal tax rate increases to a provincial standard increase, subject to appeal. In of municipal government because by virtue of this process, Councils addition,municipal governments should be required to disclose on their tax bills any are responsible to their constituents and therefore, should not be increases in tax relative to this revised base year tax rate. dictated to by the province in areas within their jurisdiction. This gives the province an unreasonable level of control over municipal operations. O 7. Ontario should require that municipalities levy user fees for sewer and water services. No direct municipal impact. CT Assessment-based charges for water and sewer services should be replaced by metering of all consumption. Flat rate water charges should not be permitted. 8. By the funding of pilot projects and other means, Ontario should encourage municipalities to There is no suggestion as to how to implement a user fee or what it levy user fees for waste collection. would be based on. They merely state that a user fee is more appropriate from a tax fairness perspective than funding via the property tax system. A New Basis for Property Taxation 9. Residential assessment of individual properties for local taxation purposes should be based on The Commission has selected a modified unit assessment basis over the following factors: the other methods available because of its administrative simplicity and understandability. However, the initial determination of the • size of building weighting factors to be used could be a long and difficult process, • dimensions of lot,and subject to intense scrutiny and lengthy debate. The changes in • type of building. assessments will produce tax shifts between properties because of differences in how they are assessed. This will be significant for municipalities that currently use the oldest assessed values. <::::::....;........: �PERTY.TAX.W£3R KTNG.?GIi C1 7I':R1�C4 ..... ......:.::.....:::::::::.......:. .: .. :: ... M. 1wTME1 TIJAZ`If3N...:................................ ................... Pis A New Basis for Property Taxation 9. (Continued) Weighting factors used in combining the factors of size of building and dimensions of lot for each type of building should be designed to ensure that the resulting assessments reflect variations in the value of properties in their current use, as shown in their rental value. Weighting factors would be permitted to vary, based on location,subject to the following requirements: • Without differential weighting factors based on location,it would be impossible to achieve assessments which reflect value in current use. • Assessment areas could not be smaller than geographically contiguous areas which carry the same zoning designation for planning purposes. 10. Residential tenants should be made aware of the assessment and corresponding property taxes The Commission's basis for this recommendation is,that since that apply to the property they occupy and that are reflected in their rents. Municipalities tenants are not aware of how much property tax is included in their should be required to send property tax notices to all tenants,informing them of all taxes rental payments,they are less aware than they should be of the applicable to their units. property tax and local issues that affect those taxes. O Administrative mechanisms should be developed to ensure that landlords are able to pass on If the reforms are implemented,the property taxes for tenants would increases in property tax and that tenants receive full credit in their rents for any reductions be substantially reduced because the education portion would be in property tax that result from reform of local government financing. removed and currently,multiple unit residential properties are assessed at two to three times that of a residential dwelling. Local government finance reforms affecting residential rental property should not be However, under rent control,property tax is allocated based on implemented until such a mechanism has been developed. percentage of rent but the assessment act allocates assessment based on physical dimensions of the rental units. The resulting problem is ensuring that the tax savings are passed on to the tenant in an equitable manner. The Commission does not provide any direction on how to achieve this. 11. All recreational vehicles and trailers located permanently in a campground or trailer park Although this recommendation attempts to correct flaws in the should be assessed as residential property. Location would be considered permanent if the current system,whereby, permanent recreational vehicle residents do mobility of the vehicle or trailer is impaired. Vehicles and trailers located in a campground not pay property taxes,it would be very difficult to implement on a or trailer park for more than 30 days and not assessed should be subject to a monthly fee. practical basis. It leaves a majority of the burden with the park The fee should be established by the provincial government to approximate the local taxes operators to notify provincial assessors of permanent trailers,as well that would apply if the structure were a permanent dwelling,pro-rated to a monthly amount. as, determine liability for monthly fees for non-permanent trailers. Fees would be collected by the operator and remitted to the local municipality or local roads board. iit%>:> f:ic ?i�jjj±iiii�i :i:iGi:<iiii i`!">iii i ";`iij"??ii%'!' ''i``.::;':> ><:` `':ii': ss ``? 2y '<s ? ss >s <' 'ss5s ' ` ':: ' i:'S`'"i ... l: RK1N.G.!GRt1TP. Efi3 N .. 1 ...:.:. 1�IME.BA T3#3N................................................................................TMPLT . ............................... +GATlflJMM1uN.. _...... _. ... ... ....._ .....:,,.,................................................................::.....:..................................................................................... ...............................................:. ...:.......................... ............... TS....................................:..:.. A New Basis for Property Taxation 12. Non-residential property should be assessed on the basis of the rental value of the property- This recommendation is an effort to ensure that all commercial and the price that would be paid for property of that class and type for the right to employ the industrial property is assessed on a uniform basis. This would not property in its current use. be difficult to implement because well established rental markets are already in existence. The Commission did not, however, comment on what would happen if rental values decreased. They do not establish any mechanism whereby assessment is reviewed with market trends nor do they recommend how any shortfall would be recouped. 13. Statutory assessment rates should apply to non-residential properties whose value in current No comment. use is difficult to determine. Railway,pipeline, and electrical transmission rights of way should be assessed at provincial standard unit rates which are updated on a regular basis as assessed values generally are updated. Church sanctuaries and cemeteries should be assessed at a standard unit rate. See Recommendation# 31. Z3 14. Vacant land should be assessed based on the preponderant use of property in the area. This provides a planning incentive to land owners to maintain the co Vacant land includes surface parking lots zoned for other purposes and unused rights of way. property in use until it is ready to be redeveloped. Municipal Taxation Policy 15. All residential property should be assessed on the same basis whether the property is This would result in multiple unit residential dwellings paying occupied by an owner or a tenant. substantially less property taxes (they currently pay two to three times more than single family dwellings because of their assessment as a condominium rather than single family residential). Therefore, some of the tax burden would be shifted to single family dwellings. 16. Non-commercial cottage and recreational property should be assessed as residential property Many cottage owners were arguing that they should not have to pay and be subject to local municipal taxes on exactly the same basis as other residential for services from which they do not receive any benefit,ie. snow Property clearing, garbage collection. However, the Commission feels that property tax is a general local benefit tax,not one that is tied to specific local services. 17. Local levies for education should apply to all properties assessed and taxed for municipal This refers to the 10% education funding permitted under purposes as residential property, including non-commercial cottage and recreational property. Recommendation#4. Y' '' ' ::......... ........................ '�XC����C . Eli''�:. ..:.................................... Municipal Taxation Policy 18. Ontario should allow municipal governments to establish their own rates of tax on non- The minimum rate is designed to prevent municipalities from residential property, subject to a minimum rate of tax established by the provincial competing against one another to set the lowest commercial tax rates government. to attract business. This competition results in higher residential rates to compensate for lost revenue. This may however provide an unfair advantage for municipalities that offer serviced industrial land at the same minimum rate. 19. The farm residence and one acre of land should be assessed and fully taxed as residential This is the same as the current system. property. 20. Wetlands,managed forests,and farming property other than the farm residence and one acre Farming property currently is taxed as residential and then receives should be assessed as non-residential property based on its value in current use, established a farm tax rebate,equivalent to the education portion of the tax bill. using available provincial data on soil quality and productivity,and should be subject to This would eliminate the need for the farm tax rebate. This local non-residential property taxes. recommendation may result in strong objections from farmers if the net taxes paid increase in the proposed new system. 21. The business occupancy tax should be abolished as a separate form of taxation of non- This would alleviate significant collection problems and costs,as residential property. Municipal governments should have explicit powers to replace the well as, reducing the number of write-offs that occur. However, this revenue forgone from residential or non-residential property taxes. lost revenue must be replaced and residents may not appreciate having to pay for lost business related tax revenue. � 22. Tore lace the relief provided for vacant non-residential properties in the current non- Currently,vacant roe does not a business occupancy tax and O -P P Y+ property riY pay P Y residential and business occupancy tax systems,the local non-residential tax rate should be also receives a 15% reduction in property taxes to make the total reduced by 40 percent for property that is vacant. taxes equivalent to residential. If the recommendations are implemented the business occupancy tax and the 85% relationship between residential and commercial will be eliminated and therefore, the reduction for vacant property. This recommendation would allow relief for vacant property to be incorporated into the new system. 23. Ontario should develop general legislation regarding exemptions from local property taxes Exemptions have been granted on an ad hoc basis by the provincial and should repeal the exemption provisions of existing private legislation. government through several types of general legislation,as well as, through many private bills. This practice should be discontinued Property should be exempt from local taxation only if it is determined that the owner should because there is no particular rationale for the exemptions and once not be required to pay for local services or if there is a public policy rationale for linking a granted, are never reviewed. They continue on in perpetuity. As a subsidy directly to the amount of property tax paid on the property. result of this,the public is unaware of the extent of the exemptions and how it impacts the local tax base. Exemptions should be based on the nature of the use of a property rather than on the characteristics of the owner of the property. The Commission feels that local governments should not be able to grant exemptions because local political issues may result in Municipal governments should not have the power to exempt property from taxation. favouritism and therefore end up with arbitrary exemptions similar to the current situation. : ............:.... . . . £ .......:...C....L.}1i ... . 3..A..T....I..#. ...N....:.:.:.:.:.:.:.:.:.:.:.:.:.:.:....:.:.:....:.:.:..:.:.:.:.:.:..::.;...;.:..;.:..;.:..;.:..;.:.:.:..:.<..;.:.................:.:.:.:.:.:.:.:.:.:.:.:..............G...... .. .. . U: : �I Y I GlfPR1 . ........ ... .... . .... :::::::::::::::: MMBI 'FS...................................:.:... Municipal Taxation Policy 24. Crown land should continue to be exempt from local property taxation,but should be subject This would ensure that both the province and the federal government to full payment by the province in lieu of all local property taxes,based on the assessment both pay their full share of grants in-lieu equivalent to what the of similar property. Roads and highways should not be subject to taxation or to payments in property tax would otherwise have been. lieu of taxes. 25. The exemption from local property taxation for"property held in trust for a band or body of Some native bands now purchase off-reserve investment property and Indians" should be restricted to reserve lands and other lands for which municipal services take advantage of the current property tax exemption on those are not provided. properties. 26. Public hospitals and public educational institutions should continue to be exempt from local These institutions currently pay$75 per bed or per registered property taxation. Formula payments in lieu of taxes based on the number of beds or the student. This is an arbitrary amount that bears no relation to the number of students should be eliminated and replaced by full payment in lieu of taxes by value of the property. the province based on the assessment of similar property. 27. The exemption from local property taxation for Children's Aid Societies should be continued. This is to ensure that municipal governments are not deprived of The provincial government should make payments in lieu of taxes for Children's Aid revenue that is necessary to pay for services provided to the Societies.S Children's Aid Societies. Q 28. The property of lower-tier(local)municipalities and school boards located within their This would pay for local services provided to the upper-tier geographic jurisdiction should be exempt from local property taxes. Property of upper-tier properties located within a municipality but may be self-defeating municipalities (regional,district,and metropolitan municipalities and counties),other than because the cost would just be passed back to the lower tier through roads, highways, and public transit rights of way, should be subject to local property taxes. the upper tier tax levy. In effect,the municipality would be paying the tax plus any administrative charges associated with its implementation. 29. The local property tax exemptions for public libraries and agricultural and horticultural The Commission does not feel that there is any basis for private societies should be restricted to property owned and operated by a municipal government or organizations to be exempt from tax. They feel that a more an agency of a municipal government and located within the municipality. appropriate approach would be to provide a grant equivalent to the amount of tax payable so that it would require review on an annual basis. 30. The local property tax exemptions should be eliminated for property owned, occupied, and Again, the Commission feels it would be more appropriate to provide used by: the Boy Scouts Association; the Canadian Girl Guides Association; private reform a grant on a case by case basis reviewed on an annual basis. This schools and orphanages; charitable organizations for the relief of the poor, the Canadian Red would be more equitable because charitable organizations who rent Cross Society and the St.John Ambulance Association. currently,do not receive any assistance for the tax portion of their Ll rent and are therefore,treated unjustly in comparison to organizations who own the property. Ty.'IA .. ORICIN +G.{l F*'*'­""*****":':­ .................. 1'STS.;:.;::.;;;:.;:.;:.;::::::.;::::.;;..:: Municipal Taxation Policy 31. The local property tax exemptions for churches, cemeteries,and religious and educational This is an effort to eliminate the process of determining which seminaries should be eliminated. religious organizations qualify for exemption and which do not. This would be very controversial,however, other recommendations in this report have the effect of significantly reducing property taxes from the current levels and therefore,this would not pose an unreasonable burden while providing a new source of tax revenue. 32. The local property tax exemption for battle sites should be eliminated. No comment. 33. Other local property tax exemptions should be limited to property owned and used by See comments in Recommendation #24. institutions of provincial interest or importance. The provincial government should make full payments in lieu of taxes for all such exempt property. 34. The following transitional rules should apply to the repeal of existing exemptions from The major impact upon the municipality would be a dramatic property taxation: increase in the number of groups requesting grants equivalent to their property taxes. Decisions on grants issued would be highly a) After advance notice of one year, there should be a phase-in period of up to five controversial. Implementation will also be very difficult and time years to permit taxpayers to adjust. consuming from an administrative viewpoint. b) Exemption policies should only be changed following the introduction of assessment based on value in current use for commercial and industrial properties and unit value assessment for residential properties. C) Special statutory assessment rates should be established for exempt properties for which it is impossible to determine a value in current use, such as the portion of church property used as a sanctuary. d) Properties such as cemeteries which are supported by fixed endowments based on tax exempt status should continue to be exempt. New cemeteries established after the change in policy should be taxable. 35. The special local property tax exemption for mining buildings and machinery located No comment. underground should be eliminated. Any building,machinery, or equipment that would be taxable if located on the surface should be taxable if located underground. 36. The exemption from local property taxation for up to 20 acres of forestry land attached to a Recommendation#22 would provide some tax relief. This would be farm (a wood lot) should be eliminated. Such property should be assessed and tax based on a new source of revenue for municipalities. its value in use as a wood lot. . ......... :-.... ::�.... .................. ......................... ........ ..... ........ ............ . .......... .......... MW WX-............... ED . .. ......I. . -N .Mmw. ............... ........ . ...... . ........ Municipal Taxation Policy 37. Provided a unit value residential assessment system is adopted, in which assessments of No.comment. individual properties of the same type and in the same geographic area vary only with differences in physical dimensions, exemption from local property taxation for modifications to property for the accommodation of elderly or disabled residents should be eliminated;any appropriate assistance should be provided through direct spending programs. Making the Local Financial System Work Better 38. Ontario should limit provincial grants and subsidies to municipal governments in areas of The Commission is of the opinion that if education,welfare and local jurisdiction to: children's services are removed from the local tax roll,then the amount of conditional and unconditional grants could be reduced a) areas in which the province wishes to increase local spending because such substantially. They feel that this would more than offset any spending generates spillover benefits outside the local area or in the province property tax increases that might result from reductions in provincial generally;and grants in other areas. However, the purpose of removing education from the property tax base, is to more accurately reflect ability to b) areas in which it is considered appropriate that the province guarantee the pay. If property taxes are then increased to pay for other programs, availability of a basic level of service, regardless of local fiscal capacity. the purpose is defeated. Also,the Commission has recommended that local governments be restricted from increasing taxes when Grants intended to increase levels of local spending on program's that generate benefits for education is removed, yet they are recommending here that they can rNI) people who live outside the local area (spillover benefits) should be designed to provide be increased for provincial program purposes. The Municipality is assistance for spending above minimum levels rather than matching funding from the first recommending that the Province not be given the ability to restrict dollar spent municipal tax increases. PFTY.T O .IP.R1jC A ?T...............................................................................TLI ::. ..:.:..: ..,::.:...............................................:.................................................................................:::::.:..................................... .................................................MP...............................1 OMl1il✓1'�TTS........................:................ Maldng the Local Financial System Work Better 39. Ontario's subsidy programs for municipal governments should be targeted to deal with This is intended to ensure that grants are allocated to ensure an factors that limit the ability of municipalities to provide access to adequate local services at equal rate of tax for commercial and industrial taxpayers and an reasonable cost. These programs should focus on particular local services; should be based equal impact on household income for residential taxpayers in all on factors such as climate, geography, and density of population;and should be designed to municipalities. However, relating subsidies to household incomes respond to emergency situations,such as the closure of a business vital to the local revenue may pose a problem due to year end time lags between gathering base. Provincial information and matching it to Municipal information. To ensure that assistance is available only to offset excessive local tax burdens required to fund minimum standard services, subsidies under such programs should vary based on local fiscal capacity-the ability of the municipality to raise revenue to pay for those programs while imposing a reasonable burden on local taxpayers. Local fiscal capacity should be measured separately for the residential and non-residential sectors. For the non-residential sector, local fiscal capacity should be measured using assessment,adjusted by equalization factors so that it is measured on the same basis throughout Ontario. For the residential sector, local fiscal capacity should be measured based on residential property taxes paid by residents of the municipality as a proportion of the total income of all households in the municipality. C� Subsidies should equalize the impact on household incomes in the municipality of residential property taxes required to support a particular service, after allowing for local revenue from the application of a standard effective rate of tax on commercial and industrial properties and after allowing for revenue from the taxation of residential property used by non-residents. .::.::........::.;::.;:. R PERTY Tll .. CJ C. P:it t 31t AfE1�1€)�k'Pf€7rN...........................:...:...::,.:::::::::.:::.::::::::::::::............ZMI�I I .. TZ#3NOiVfEN'I'5.::::::::.::.;,:::.:: ; :::::::::::. 1...............................:.:. ............................ Making the Local Financial System Work Better 40. Each local (lower-tier) municipality's share of county, regional,district,or metropolitan Currently,equalized assessment only is used to allocate upper-tier (upper-tier) costs should be based on its share'of total residential and non-residential costs with no reference to or impact of local tax policies.The total assessment. assessment for each local municipality is adjusted for differing base years and the upper tier simply allocates taxes on a prorated basis. Residential and non-residential assessment would be measured on a consistent basis This recommendation incorporates differing tax policies into the throughout the upper-tier area. The share of each lower-tier municipality would be allocation. The difficulty with this recommendation from a fairness determined as follows: perspective is that once the local share is determined,the municipality can then determine the mix between commercial and a) The weighted average rate of tax on residential property in the upper-tier area in residential in accordance with their own tax policies. This may the previous year would be calculated by dividing total residential property taxes result in a great deal of political pressure to amend "local tax levied for upper-tier purposes by all municipalities in the upper-tier area by total policies"which would ultimately lead to many inconsistencies residential assessment in the upper-tier area. between municipalities. b) The weighted average rate of tax on non-residential property in the upper-tier area in the previous year would be calculated by dividing total non-residential property taxes levied for upper-tier purposes by all municipalities in the upper-tier area by total non-residential assessment in the upper-tier area. C) Residential assessment would be multiplied by the weighted average rate of tax on residential property as calculated above. d) Non-residential assessment would be multiplied by the weighted average rate of tax on non-residential property as calculated above. e) The share of each municipality would be calculated by adding the figures obtained in (c) and (d) above and dividing by total residential and non-residential property taxes for upper-tier purposes in the upper-tier area in the previous year. Once the share of each lower-tier municipality is determined in this fashion, lower-tier municipalities would determine the mix of residential and non-residential property taxes used to raise the required revenue in accordance with their own taxation policies. ............................ ................. ....... .. .... . .......... ... 7 . .......... 17: .......... . .. .... ... ... . ...... .. .............. ....... ..... . Making the Local Financial System Work Better 41. Development charges for education should be eliminated,and the infrastructure costs The issue of development charges for education was upheld as associated with eduction should be funded from provincial general revenues. constitutional by the Ontario Court of Appeal in 1993. However, the Commission is of the opinion that education on an overall basis, Municipal development charges should not apply to infrastructure development that is should not be funded from a local benefit tax and this includes related solely to the total population of the municipality,irrespective of its location within capital expenditures. The Commission also contends that if the new the municipality,and should apply only to costs that would not be recovered from increased development does not impose any costs on the current residents or if property taxes on the new development. the costs do not exceed anticipated revenues from property taxes in the new development,then development charges should not be imposed. This would be costly and time consuming to determine on an individual development basis whether development charges should apply and what dollar figure should be attached. Also, taxation on new development historically does not support maintenance requirements such as snowplowing,etc.,for new development. It is unlikely that taxation would support capital infrastructure requirements. In addition,taxes are collected long after infrastructure costs are expended since these costs are normally required in advance of the residential development. Provincial Property Taxation 42. Ontario should establish a provincial property tax on commercial and industrial property, See Recommendations#3 and #21. The Commission feels that this levied at a uniform effective rate across the province, to replace the revenue raised by the could not be raised through an increase in the Corporate tax rates local education levy on non-residential property and the education share of the business because corporations often reorganize their affairs to minimize any occupancy tax. taxes. However, the Commission does not feel that taxes should be earmarked and therefore,this tax would be buried with general provincial revenues and the province could then avoid accountability for tax increases for educational purposes. The uniform rate will result in substantial tax shifts between municipalities and within municipalities between commercial and industrial. The commercial businesses will feel the greatest impact of tax increases. This recommendation represents a significant change because it would permit the Province direct access to the property tax base. 43. The provincial commercial and industrial tax should be levied on the assessed value of See Recommendation#9. commercial and industrial property as established for municipal taxation purposes and equalized to a common base across Ontario. 44. The provincial commercial and industrial property tax should apply to all non-residential No comment. property which is used for a business purpose. Property owned by a non-profit organization and used for a non-profit or charitable purpose should be exempt from the provincial commercial and industrial property tax. Nf��: .A.. ...N.......................:........ . I:AP .; . . Provincial Property Taxation 45. Provincial policy towards the taxation of farming should be reformed as follows: This would leave farming properties generally in the same tax position as they are currently. a) Fanning property should be exempt from the provincial commercial and industrial property tax pending a broader review of the economics of the farming industry in Ontario and the policy objectives of government with respect to the farming industry. b) The Farm Tax Rebate Program should be abolished. 46. The rate for the provincial commercial and industrial tax should be set to generate The problem associated with these recommendations is that approximately the same amount of revenue as is currently raised for education at the local significant tax shifts will occur as a result of standardized level from the business occupancy tax and the non-residential property tax. assessment across Ontario and abolition of the business occupancy tax. The same total tax is intended to be collected but a heavier burden will be carried by small retailers and businesses in municipalities who currently pay a higher rate of business occupancy tax than those in other municipalities. Reducing Reliance on Regressive Taxes 47. Ontario should reduce its reliance on residential property taxes. This is because property taxes are regressive, ie. the lower the income of the property owner, the larger the percentage of income used to pay property taxes. Implementation and Transition 48. Ontario should implement the recommended changes in education expenditure allocation This recommendation is intended to ensure that the tax fairness and in the sources of revenue for education as a package. objective is maintained. The recommendations for education reform are very interdependent and must be implemented simultaneously in An education finance reform package must also include a mechanism to ensure that order to achieve the fairness objective. property tax reductions on residential rental property are passed on to tenants and must enable municipalities to set tax rates on residential and non-residential property independently. 49. Ontario must introduce a complete framework for education finance at the beginning of the See above. transition to a new funding system. This framework should include the expenditure allocation model,the shift in commercial and industrial taxation responsibility from school boards to the province, legislative authority for the discretionary local levy on residential property,and the shift in primary funding responsibility for education from school boards to the provincial government. ................................... ......X.X.... . ........ ....... X: ............... ... ......... ... .. ...... ...... ...... ..... ... ... ....... .... x X: ............. .... ... .......... X: f . .. .. .. ............... .. .... ... ItPL ..............11............. ........ ...11 X 1 1 Implementation and Transition 50. The education portion of the residential property tax (other than the limited local This is based on a 20% drop each year in the current commercial discretionary levy) should be eliminated at the beginning of the phase-in period. and industrial property taxes for education. The shift from local non-residential property taxes for education to provincial commercial and industrial taxation at a uniform rate should be phased in over a five-year period. 51. Prior to the beginning of the transition period for assessment reform, Ontario should Staff recommends that the province allow the municipalities the implement policy changes dealing with local tax policy flexibility;with sharing the costs of opportunity for input at the beginning of the process not just regional, district,and metropolitan municipalities and counties among local municipalities; comments after the policy is developed. This recommendation is far and with the establishment of a new basis for distributing provincial equalization grants too general for municipalities to be able to assess any impact. among municipalities. 52. Transitional and implementation measures for local government finance reform should be A defined time period results in greater clarity and easier consistent with the following criteria: implementation. Also, implementation over all classes of property on a consistent basis would increase the perception of fairness. a) Transition should take place over a defined period of time; it should not be linked However, the Commission does not provide any indication as to what to an event such as the sale of property(in the case of assessment) or subsequent would be considered a reasonable implementation period. decision by a particular local government. b) Transition should, to the extent possible,be weighted towards the beginning of the transitional period to ensure that momentum for reform is maintained. The same transitional measures should apply to all classes of poverty. 53. Ontario should, if possible, implement the reform of education finance and of commercial This is because some of the funding for education is linked to and industrial assessment at the same time. commercial and industrial taxation. 54. In the transition period for assessment reform,the old and reformed assessment rolls should The Commission recommends that a pilot reassessment study be be maintained in parallel. Over a fixed transition period, municipalities would raise a performed first in order to determine the kinds of assessment portion of their revenue requirements from the old assessment roll and a portion from the problems that are likely to arise. The Commission also indicates new assessment roll,with the proportions mandated to shift towards the new roll throughout that implementation could be simultaneous across the province or the transition period. staged from area to area beginning with those parts of the province where assessment systems are most out of date. Business occupancy taxes would be phased out by linking them to the old assessment roll only. 55. Ontario should locate all of the functions related to local government finance in one The Commission feels that this is necessary in order to ensure ministry. implementation of its recommendations in a coordinated and integrated fashion.