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Municipal tax revenue issue has been very badly framed

If it were up to me, every politician in the country would be forced to read a copy of Warren Kinsella's book, "The War Room" before being allowed to seek office. Getting an accurate message out early and clearly is terribly important, lest your opponents define the issues for you. Locally, this is evidenced by a raging debate over a proposed 6.5% "tax increase" for 2009 in Guelph. As I argue in today's column, with ever rising propertly value and the end of MPAC's evaluation freeze, calling this a tax increase is at minimum a misnomer. Had it been phrased, far more accurately, as: "We anticipate that tax revenues will rise approximately 6.5% on rising property values, which is in line with our increased costs", the necessary rise in revenue would be logical rather than controversial.

I don't know my exact tax rate right now. My tax bill does not show my taxes as a percentage of property value, which is something that should be corrected. Based on my total tax bill (municipal + education) for this year, and my property evaluation, my effective tax rate for 2008 appears to be 1.36%. With MPAC's evaluation freeze gone, I can expect my house to rise as much in value on MPAC's rolls as it has on the open market. Based on that and a conservative estimate of what my house will be worth under this year's MPAC numbers, and a 6.5% increase in how much the municipality needs from me to provide me its services, my tax rate should drop to 1.21%.

You know what that is? It is a tax cut of 12% for 2009. And that's ignoring population (taxbase) growth, which would make that cut even more dramatic. If we had never had the evaluation freeze, our evaluations would have been rising at about the same speed as our tax revenue demands for the last few years, and that trend would be continuing. Is that not what sound fiscal management by our city leadership is?

There seems to be a feeling among some residents that tax revenue should never go up. Had we instituted such a policy, say, 30 years ago, what services could we still afford as a city? Our population was somewhere around half its current size and the city's tax revenue would be a fraction what it is today, but today's city would still have today's demands. Would we have a municipal water system, with our 30-year-old tax revenue freeze? Not likely, that's increasingly expensive as we overburden the water table that feeds us. How about a police force? Well, there's the provincial police nearby... Fire service? What's the point, we don't have any water. Trash collection? Forget it! Potholes? Leave them there, they're the best part of the roads that have not been upgraded since 1978! City Library? Well, we'd need to keep that so people could read about what the City was like before people got the idea that it could function without any tax revenue.

It seems to me that the people demanding no tax revenue increases whatsoever are the same people who complain bitterly when their city parks are not maintained, potholes are not filled, or community-damaging developments are not approved. There is this disconnect prevalent where people fail to understand that the purpose of a tax is to allow our city, and our society, to function. It is how we pool our ever increasing shared costs. Taxes are not a sinkhole into which our money falls, never to be seen again. Taxes, as unpleasant as they are to pay, are the grease that keeps our society moving. I pay my taxes with the same pride with which I use the services they provide me.

When people demand that the city "sharpen their pencils" and look for numerous small cuts to the budget, what they are really asking is for services to be cut. But ask which ones should be cut, and suddenly they go very very quiet. More importantly, even if we were to cut our services by, say, 10% this year, the cost for the remaining services will still rise by however many percent next year and we will be in the same place we are today, with fewer services to show for it.

The proposal from staff is to raise revenues by 6.5% to keep up with expenses rising at the same rate, they are not proposing to raise our tax rates.

Anyway, today's column.

Municipal tax a function of value

Are city staff proposing to raise taxes by 6.5 per cent, or are they proposing to raise revenue by 6.5 per cent? There is an important distinction.

As our property values continue to rise throughout Guelph, our taxes as a percentage of our property value may in fact be dropping. Federal and provincial tax revenues rise as the economy grows, yet no one claims that those taxes went up. Tax rates on income and spending remain the same, but the value of the economy rises, and so do the revenues and costs associated with providing tax-supported services.

Outside my home in south-end Guelph I have a passable road. It was kept clear of snow through the winter. It is equipped with a sewer system. My trash was collected last week and will be again tomorrow. Potable water flows into my home. Police patrol and firefighters respond to my neighbourhood.

There is a well-maintained public park across the street from me. City buses now pass three times per hour.

What do all these things have in common?

They all require the use of motor vehicles. All of those vehicles require fuel. All that fuel has to be paid for. And, of course, the cost of fuel has gone up as much for the municipal government as for the rest of us. Why, then, are some citizens upset at the city for proposing to increase tax revenue by 6.5 per cent for 2009 to keep up these services?

Have our personal expenses gone up any less? The price of fuel has more than doubled over the last few years while the price of crude has quadrupled. Food prices are flying. The cost of a home in Guelph has shot up dramatically, my own rising approximately 50 per cent in value since I bought it in 2002. Our expenses are rising faster than our income. We know this. It is the precursor of what may be a serious recession.

The Municipal Property Assessment Corporation (MPAC)'s 2006 property evaluation freeze is now over. Our homes will be reassessed by MPAC and our 2009 taxes will be based on these new assessments. The assessed value of many of our homes will skyrocket. That may allow our tax rate to drop as a percentage of the value of our property. If expenses go up but our tax rate drops it could be argued that our council is actually remarkably fiscally responsible.

The newspapers illustrate annual tax numbers by showing a hypothetical dollar value rise for each resident, rather than showing those same numbers as a percentage of our ever-rising property values. Our federal and provincial tax revenues also rise in dollars, but their rates do not.

We should be measuring our municipal taxes on that same basis -- as a tax rate rather than as a dollar value.

If, after considering this real measure of our increased wealth and obligations, we still wish to lower our taxes, then we each have to do our own part. We cannot expect the municipal government do it all.

Rather than complain, we can do lots of little things to lower taxes by the honest measure of municipal taxes as a percentage of our city's value. Here are a few ideas:

For one, drive less. As a car owner, I am as tempted to use my car as anyone else, but have been disciplining myself to make more frequent use of city buses, VIA Rail, and my bicycle. Roads are the single biggest expense we have, a free service that costs a lot. Road and boulevard maintenance and construction alone amounts to around half of this year's budget increase, and accounts for some $40 million per year of the city's budget.

Use less water. This could reduce the number of new wells the city needs to drill, and the amount of water that needs to be treated on the way into and out of our homes.

Organize trash so that the trucks don't have to stop every 15 metres, saving time and fuel. We could perhaps have our recycling and compost collected only every second week, as our clear bags are.

Get involved constructively. Identify where you feel the city is spending too much and suggest alternatives.

If you do not want your property taxes to increase as fast as your other expenses, identify which city services and what city infrastructure you would rather do without, and see if others agree. This is something we can do together as citizens of Guelph.

Consider the true ramifications of tax revenues not keeping up with the services the City of Guelph provides.

The city's expenses are going up as fast as our own, and we need only look to ourselves for the solutions.

To paraphrase former U.S. president John F. Kennedy's inaugural address: ask not what your city can do for you -- ask what you can do for your city.

Posted at 09:32 on July 09, 2008

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Christian Conservative (www.christianconservative.ca) writes at Wed Jul 9 11:05:42 EDT 2008...

I see... so the proposed increase in my municipal taxes is really a "tax shift"! ;-)


Leanne Piper writes at Wed Jul 9 13:57:33 EDT 2008...

Wow - great job of putting it into perspective David - this is well done! There is still much work to be done locally on better explaining how and what drives the municipal taxation system.

In Ontario, approximately 8 cents of every tax dollar stays with the municipality. 42 cents goes to the province and 50 cents to the feds. In most European countries (with high quality of life, healthy GDP's and thriving economies)the municipalities get between 20-30% of the tax pie, or higher.

Frankly, 8 cents on the tax dollars is not enough to get the job done effectively and is the primary reason why most municipalities across Canada are experiencing an "infrastructure deficit." Granted, the New Deal for Cities gives some gas tax revenue to cities to fix roads and bridges, but it's not near enough to fix the larger problem.

On top of that, the province and feds mandate new services that municipalities MUST provide, but they don't give corresponding funds. For example, all cities must now, by law, conduct annual lead testing for municipal water quality (which is good). The law came down from above. We must now add this into the city budget for 2009 and beyond - it's part of the 6.5%. Most people think "downloading" ended in 2003, but it's still happening as illustrated in the example.

Also, property value assessment (mill rate system) as the sole source of residential tax income for a city has flaws. It also hurts seniors - ie. if you bought your house for $25K in 1962 and it's now worth $300K and rising, but you are on a pension, you're up the creek.

We need a tax shift in Canada. A few years ago, GST was 7%. It's now 5%. If the gov't had taken the 2% and given it to municipalities for infrastructure (roads, parks, transit, etc.) we wouldn't be in a 6.5% crunch.

Case in point: If my consumer spending (GST taxable goods/services, gas, clothes, etc.) is $15K per year (I have 4 kids so that's probably close), I supposedly have $150 extra bucks in my pocket. Like most Canadians, it's invisible. But if my municipal taxes go up $150 next year, I'm more likely to notice. I would rather have an income-based redistribution of federal or provincial (GST, PST and income tax) taxes allocated to my municipality. A tax-sharing approach between all levels of gov't is also good for seniors and those on a fixed income.

There's a good description of the property tax system at: http://en.wikipedia.org/wiki/Property_tax

Anyway, enough about taxes...time for real work so I can feed the family...

Keep up the great work!

Cheers,

Leanne


David Graham (cdlu.net/) writes at Wed Jul 9 19:05:29 EDT 2008...

Thanks Leanne!

It would be helpful if everyone in the city could be brought to understand the issues you are bringing up. Perhaps you can post your comment here as an entry on the ward 5 blog or as a letter to the editor?

I have been finding the debate very one-sided, without the needed balance, and it irks me. We need a debate of facts rather than emotions.


Mark Bailey writes at Fri Jul 11 18:07:47 EDT 2008...

Great comments David and Leanne.

As do many economists I favour a higher GST for a variety of reasons (www.cbc.ca/story/canadavotes2006/national/2005/12/01/gst-reac051201.html). Harper cut the GST both as a populist move and to prevent future federal governments from having much spending discretion. This is the beauty of Dion's Greenshift Plan and why Harper is fuming. At the town hall meeting yesterday Dion indicated he is willing to support our ailing municipalities (Leanne, I believe you are the one that asked the question). I read one economist's estimate that the Greenshift will return to the government spending power roughly equivalent to 2% back on the the GST. Perhaps it is from this extra revenue that he will be able to better support municipalities. Cheers, Mark.

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