Behind the bluster of Calgary's great tax debate, 2019 edition

Finger-pointing, protests, calls for city council to be fired and close-up photos of tax bills have been the defining moments of Calgary's great tax debate, 2019 edition. But there's complexity behind the scenes that eschews easy blame and bluster.

If you must assign blame, point your finger at city council, then turn around and point it at the province and then take a look in a mirror because there's a good chance you should get a finger in the face as well.

So, what exactly is going on?

The business burden

The city currently has a ratio of business property tax to residential property tax of 4.3:1, meaning the approximately 14,000 businesses in the city are essentially subsidizing the approximately 500,000 residential properties.

The system was humming along without complaint or as little as you can get in this tax averse place until the oil price crash cratered the value of the downtown core.

With vacancy rates stubbornly remaining over 20 per cent, the buildings in the core have lost a total value of about $14 billion, leaving behind a $250-million hole in the city's finances.

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The assessment system, imposed by the province, means the city can look only at the value of a property, determine whether it has increased or decreased, and then base each owner's tax bill for a given year on that assessment.

Put simply: if the value of one property drops, another property has to pick up the financial slack.

It's why thousands of businesses outside the core are seeing increases ranging from 10 per cent to 30 per cent or more.

Core complacency

Like the provincial addiction to oil and gas revenues, the downtown cash cow caused complacency and prevented councils, past and present, from pushing to change the tax assessment system that almost everyone agrees is inadequate as a business levy.

It has also allowed politicians to keep residential property taxes artificially low by sucking money out of the towers and allowed Calgarians to expect those low residential rates.

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It's the same political calculation that prevents Alberta from implementing a sales tax to deal with its budget shortfall.

Now, with little hope that $14 billion in value will return soon, if at all, the city is frantically some would say belatedly struggling to find solutions.

"Here's my question: why didn't priorities and finance committee make this a priority," said Ward 3 Coun. Jyoti Gondek, who's sitting on a new committee tasked with coming up with long-term solutions to the problem.

"Why didn't they strike a working group to address the tax shift? And why didn't it become a standing agenda item? And that sounds like I'm pointing fingers, and yeah I am, because the chair of that committee should have made this a priority item. It should not have taken a brand new council to say we are beyond being in trouble. We have blown it this year."

Mayor Naheed Nenshi has been the chair of the priorities and finance committee since 2012.

Shifting the burden

On Monday, at a special meeting to address the issue, council unanimously voted to cut $60 million from its budget this year and to pull $70.9 million from its coffers to reduce the tax increase by 10 per cent.

Gondek is a strong advocatefor shifting more of the tax burden onto residential taxpayers a process which has already begun and which would bring the city more in line with other jurisdictions across Canada.

"That's what hit my gut, the very basics are wrong here," said Gondek.

"You cannot have that kind of proportional imbalance and expect the business community, at a time when we've been in a downward spiral, to still carry the day. The shift that had to happen that other people didn't have the appetite to do could have saved us."

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Calgary's business share of property taxes has shrunk from 59 per cent about a decade ago to about 53 per cent today.

But the inverse ratio is the norm in most places.

In Edmonton, for example, homeowners pay about 52 per cent ofmunicipal taxes, while businesses pay 48 per cent. In Vancouver, the split is about55 per centresidential. And in Ottawa, homeowners pick up65 per centof the tab.

Gondek figures a 50/50 split would cost the average taxpayer with a $500,000 home approximately $500 extra per year.

Shifting the burden, however, was not part of what council passed on Monday.

Reform the system

What was included was direction to send a letter to the province asking for reform of the assessment system that binds the city's hands.

The province, it should be noted, takes 40 per cent of the residential taxes collected in Calgary and 20 per cent of the non-residential haul.

Jason Ribeiro, a community activist who was standing with business protestors outside city hallon Monday, says reforming the structural constraints of the assessment system is an essential long-term goal.

So far, the new United Conservative Party government hasn't shown much interest, but Ribeiro says the city shares some blame for the province's disinterest because it hasn't done a good job of educating small-business owners about the challenges Calgary faces.

Or what could replace the current tax system.

Ribeiro argues the city should have rallied the small-business community to help it pressure the province for changes.

"The best advocates for provincial reform and for greater flexibility around how assessments are being done are the business owners," he said.

Tweaks within the system

Gondek says the time for more Band-Aid solutions like pulling money out of city reserves to offset increases is over. In addition to shifting the tax burden, she thinks the province should consider collecting its own taxes rather than taking a hefty chunk of the city's collection.

She also questions the property tax system in general.

"It's a very regressive system," she said. "And I think that's what makes it so difficult for municipalities to survive is we don't know what's going to happen with assessment from year to year."

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Property value going up has nothing to do with income increasing, or business picking up. It's not tied to the reality, or the bottom line, of a business or a homeowner.

While councillors and the public debate what could replace it, however, the city still needs to spend. There are roads and sewers to build and maintain, public transit and police, and yes, even the paltry sum spent on things like bike lanes.

Spending and cuts

In council chambers on Monday, some councillors mused about selling assets to make a quick buck and save on operational costs. Others fretted over which front-line services would be cut.

And then there's the debate over why council approved 14 new communities to be built along Calgary's edges, incurring sprawling costs, but also potentially increasing the long-term tax base.

Ribeiro thinks that decision is reflective of a council without a vision for how to manage its finances long-term.

"The other thing that we have to discuss as well is the fact that we've built, and by we I mean successive councils, have made decisions and policy decisions even outside of the property tax issue that have reinforced and actually made this problem even worse. Approving communities or new communities on the periphery of the city comes at a service cost and that cost is caused by sprawl," he said.

"So the more and more that we continue to build out in the city, the more and more we don't focus on smart land-use planning, the more expensive it is to run and operate the city."

Ward 7 Coun. Druh Farrell, speaking in council chambers on Monday, asked whether it was possible to rethink those 14 new community approvals, which administration told her increased the budget by 2.15 per cent.

Everything, administration said, was on the table.

'Not enough time to be all that thoughtful'

One thing is certain at this point:cuts are coming soon and those cuts will be noticed. Given how late council was in addressing the issue, the cuts will also be somewhat ad hoc.

"Quite frankly, there's not enough time to be all that thoughtful," Nenshi said Monday.

And as with everything in this world, none of Calgary's tax challenges happen in a vacuum. With new tax incentive provisions introduced by the province, the city could also face greater regional tax pressures as jurisdictions battle for businesses and offer carrots to set up shop.

Come tax time next year, it's unlikely there will be changes on a structural level.

"Do I imagine a scenario where the municipal government has a little bit more of an authority on how they make decisions from a tax-based perspective?" said Ribeiro.

"Like, if you think about even the last innovations around the [community revitalization levy] or if you look at the last innovations around offsite levies, there's some things that have happened that have been beneficial. So I could see these sort of smaller tweaks happening rather than a large wholesale change."

Calgary: The Road Aheadis CBC Calgary's special focus on our city as it passes through the crucible of the downturn: the challenges we face, and the possible solutions as we explore what kind of Calgary we want to create. Have an idea? Email us at calgarytheroadahead@cbc.ca

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