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The Two-Tier Property Tax Report (Page 2)
by the Rodney two-tier Property-Tax Committee
Table of Contents :
P1 Need for Alternative Tax Strategy
P1. Rodney C'tee 2-Tier Tax Proposal . P2 Description of Aldboro' Township P3 ON.gov't Restructuring Proposals P4 Local Assessment & Tax Data P5 .42%Land /58%Improvem't Solution |
P6 Assessm't:Ratios;Mill Rates;Taxes P7. AVA & MVA compared P8. Who Pays Less and Who Pays More P9. Variations to Current Process . P10 Rodney C'tee Conclusions P11.Examples & References P12.Recommend'ns Acknowledgm'ts |
Description of the Township of Aldborough
Aldborough Township (population 4000) is approximately half the area of Metro Toronto and is located at the westerly end of Elgin County.
Ratepayers are l)concentrated in the village of Rodney (pop. 1000), 2)on scattered severed parcels and hamlets, 3)around the nearby municipality of West Lome, 4)on 300 farms with an average of 231 acres per farm.
Local business and industry (automotive, food, metal fabrication) employs approximately 1200 people and the township's prime farmland supports a healthy farm economy based on corn, soybeans, livestock and market gardening.
The Two-Tier Property Tax Report (Page 3)
by the Rodney two-tier Property-Tax Committee
Ontario Government Restructuring Proposals
Current provincial and local government restructuring is partially based on the findings of the Who Does What Panel, & the Greater Toronto Area Task Force (Chaired by Golden).
1. Amalgamations: local municipalities; school boards; utilities and semi government agencies.
2. Co-operation: bulk purchases, mutually funded services such as fire departments and waste management.
3. Downsizing and Disentanglement:
(a) shift of services from upper to lower tier of government
(b) shift of services from public to private sectors
(c) eliminating services; doing more with less
(d) exchange of responsibilities (education, roads, etc.) between provincial and lower tier governments.
4. Monetary: some direct tax relief but also many more user fees and surcharges.
(Rodney 2-tier C'tee Comments: "Any successes with restructuring will only put more pressure on our limited resource base - land. In the long term, speculative resource or location rents will rise and another round of inflation will signal the next economic downturn.)
The Two-Tier Property Tax Report (Page 4)
by the Rodney two-tier Property-Tax Committee
Local Assessment and Tax Data
Rodney and Aldborough land and building assessments for 1993 were purchased from the Ministry of Finance by the Two Tier Committee and the Village of Rodney. The combined 2232 property assessments were based on estimated market values for the 1988 base year.
Coincidentally, Rodney and Aldborough amalgamated July 1, 1993 and county (Elgin) reassessment also occurred for the first time. These two events caused the assessments distribution among property classes and between land and buildings to change substantially in the new municipality of Aldborough,
A small number of class 8 properties (services like Ontario Hydro) and exempt properties are excluded from this report.
- Chart 1: County Property Class Factors
| Residential, Farm |
.044 |
| Multi-Residential (over 7 units) |
.085 |
| Commercial |
.065 |
| Industrial |
.093 |
Chart 2: Percent Shifts in Assessment
| |
Before Amalgamation |
After Amalgamation |
Rodney/Ald |
| Land |
18 |
49 |
41 |
| Buildings |
82 |
51 |
59 |
| Total |
100 |
100 |
100 |
Both Market Value Assessment (MVA) and Actual Value Assessment (AVA) hide the fact that property taxation is really two taxes - one on the land, (site) assessment and the other on the improvements found on the site. In Ontario urban areas 70 to 80 percent of real estate taxes fall on improvements (Rodney 82%) and 20 to 30 percent on land - these percentages being subject to a wide number of variables. In rural areas 50 to 60 percent of taxes come from building assessments (rural Aldborough 51%) and 40 to 50 percent from land assessments.
The Two-Tier Property Tax Report (Page 5)
by the Rodney two-tier Property-Tax Committee
In certain property classes land is grossly underassessed relative to buildings in the same class, and land in other property classes.
Chart 3: MVA as a Percent of Actual Value (1993)
| Tvvp of Aldborough |
Farm Class |
Residential Class |
| Land |
67% |
44% |
| Buildings |
73% |
82% |
| Both |
70% |
72% |
The Rodney C.tee 42% Land 58% Improvement (Building) Solution
The fundamental principles of fairness, equity and simplicity are the dominant features; of the two-rate approach to local taxation in Aldborough Township. With 42 % of taxes from site assessments & 58% from building assessments, a significant majority of home-owners, businesses, tenants & farmers will receive tax reductions (while the Urban Administration collects the same total tax-yield).
Chart 4: Number of Properties by Class and Municipality
| |
Before Amalgamation |
After Amalgamation |
| Class |
Code |
Rodney |
Aldborough |
Combined Total |
| Residential |
(0) |
415 |
751 |
1166 |
| Farm |
(7) |
11 |
924 |
935 |
| Commercial |
(3) |
60 |
24 |
84 |
| Industrial |
(4) |
22 |
21 |
43 |
| Total |
|
512 |
1720 |
2232 |
The Two-Tier Property Tax Report (Page 6)
by the Rodney two-tier Property-Tax Committee
Assessments. Ratios. Mill Rates and Taxes
Chart 5: 1993 Factored Assessed Values (ie: Chart 1 factors x MVA)
| Class |
Code |
Land |
Buildings |
Total |
| Residences |
(0) |
895,106 |
2363,686 |
3,258,792 |
| Farm |
(7) |
2,229,590 |
1,376,.870 |
3,606,460 |
| Multi-Resid. |
(2) |
4,250 |
38,116 |
42,366 |
| Commercial |
(3) |
72,877 |
358,865 |
431,742 |
| Industrial |
(4) |
99,908 |
759,116 |
859,025 |
| Total |
|
3,301,731 |
4,896,654 |
8,198,385 |
Ratios: The building assessment divided by the land assessment equals the building to'land ratio. The average taxpayer in each property class will pay fewer taxes than at present if their building to land ratio is higher than the class average. If the individual building to land ratio is lower than the class average (i.e. a vacant lot) then the taxpayer will pay more. The same principle applies when comparing each class average with the municipal average.
Chart 6: Building Assessment to Land Assessment Ratios
| Property Class |
Code |
Building to Land Ratio |
| Residential |
(0) |
2.64 |
| Farm |
(7) |
0.62 |
| Multi-Res. |
(2) |
8.97 |
| Commercial |
(3) |
4.92 |
| Industrial |
(4) |
7.60 |
Average ratio for Aldborough Twp. 1.48
Rates: Municipal mill rates are calculated: Total assessed value of Budgeted Taxes x 1000 = mil1 rate.
Mill rates are then multiplied by individual property market value assessments. See samples in the Appendix.
On a revenue-neutral basis, equity in tax distribution would call for 42 % from site assessments and 58 % from improvement assessments viz: buildings - discussed on Page 5.
The Two Tier Property Tax Report (Page 7)
by the Rodney two-tier Property-Tax Committee
Chart 7: Combined Municipal, County and School Mill Rates.
Single Rate* $2,934,135(total taxes) x 1000 = 357.89 mills
$8,198,385(total x factored MVA)
Land Rate $1,232,337 (42% of total taxes) x 1000 = 373.23 mills
(42%) $3,301,731 (total factored land MVA)
Building Rate $1,701,798(58% of total taxes) x 1000 = 347.54 mills
(58%) $4,896,654 (total factored building x MVA)
Listing of Local Variations to Current Process
1. Farmland assessments are reduced 10 % as an allowance or discount for private improvements such as fences, windbreaks, ponds, tile drainage, bridges, ditches, fertilizer, permanent pasture, etc. More research could refine the allotment of these improvements to each farm parcel just as assessment exemptions for wood Iqts are now specific to parcel.
2. The Business Occupancy Tax (BOT) is not part of this Report. Recent government proposals have recommended that it be abolished. This Report suggests that it be incorporated into taxes on site values rather than becoming a further burden on the productive forces in our economy.
3. This Report excludes $24,000 collected from Rodney taxpayers for garbage and recycle collection. Households in the village could be paying $25 to $125 to have the same amount collected. A per unit fee should be used for this service and not property assessment.
4. This Report eliminates the current discriminatory 15% spread between residential/farm and commercial /industrial mill rates (thereby rendering it more useful for comparison with other Urban Administrations).
The Two-Tier Property Tax Report (Page 8)
by the Rodney two-tier Property-Tax Committee
Who Pays Less and Who Pays More
(ie: Who is not paying a fair share of property tax)
Chart 8: Differences: - Single-rate & Two-rate Taxes in Aldborough
| Property |
Single-Rate |
Two-Rate |
$-difference |
%-difference |
| Class ($357.89) (Land $373.23/Bldg $347.54) |
| Residential |
$11,662.89 |
$11,555.56 |
- $ 107.33 |
- 0.92% |
| *Farm (i) |
$12,907.16 |
$13,106.67 |
+$ 1,995.21 |
+1.54% |
| *Farm (ii) |
$ 6,922.55 |
$ 6,865,55 |
- $ 57.00 |
- 0.82% |
| Multi-Res. |
$ 151.62 |
$ 148.33 |
- $ 3.29 |
- 2.16% |
| Commercial |
$ 1,545.16 |
$ 1,519.20 |
- $ 25.96 |
-1.68% |
| Industrial |
$ 3,074.37 |
$ 3,011.12 |
- $ 62.25 |
- 2.05% |
| Aldborough |
$23,356.59 |
$23,099.76 |
- $ 256.83 |
- 1.10% |
**Although recent proposed tax revisions may assess farmland at 25% of the muni-cipal rate, current provincial legislation gives Ontario farmland (excluding farm bldgs and an acre of land) a rebate on taxes payable of 75% to each owner of farm-land. Farm (i) in above Chart 8 are taxes paid to the municipality by the farmer before the rebate is refunded by the province. Farm (ii) are the actual taxes farmers would be paying after the rebate is received. When the rebate is figured into property taxes paid, the average farmer of the 300 farms in Aldborough would get an average tax decrease of $19.00 per farm. The Aldborough totals use Farm (ii) figures.
Aldborough's farmland is assessed almost 25% higher than residential land when com-pared to actual value. If this inequity were corrected there would be a significant shift of taxes,& farmland would not subsidize land in other property classes as occurs now.
The Two-Tier Property Tax Report (Page 9)
by the Rodney two-tier Property-Tax Committee
Chart 9: Average Taxpayer Dollar Decreases and Increases by Property Class
Class
Code |
Decrease
per prp'ty |
Number of
Prop'ties |
Decrease per Prop. w/bldg |
Number of
Prop'ties |
Incr/Land
Prpty |
| 0 |
9.20 |
1166 |
11.29 |
950 |
20.58 |
| 7 |
19.00 |
(300) |
19.00 |
(300) |
28.50 |
| 2 |
82.25 |
4 |
82.25 |
4 |
16.61 |
| 3 |
30.90 |
84 |
39.93 |
65 |
13.56 |
| 4 |
144.76 |
43 |
194.53 |
32 |
36.33 |
| Aldboro |
16.08 |
1597 |
1351 |
31.71 |
|
Chart 10: Properties with Percent Tax Decreases or Increases
Class
Code |
Total Properties
(farms) |
% Vacant
-All Increases- |
% w/Bldgs
() +/- |
| (0) |
1166 |
18.2 |
- 64 |
| (7) |
(300) |
see* below |
- 63 |
| (2) |
4 |
- |
- 50 |
| (3) |
84 |
22.6 |
see ** + 63 |
| (4) |
43 |
25.6 |
see ** + 72 |
* In Aldborough very few farms are "vacant" in the urban sense since nearly all have crops or livestock.
** These property classes have a high vacant percent, and many properties have a low Bldg/ Land ratio (garage or shed, but relatively large land parcel.)
he Two Tier Property Tax Report (Page 10)
by the Rodney two-tier Property-Tax Committee
Conclusions
The two-tier property tax provides a new and flexible range of options to fiscal tool kits of municipalities and school boards which are trying to enhance their economies and improve the quality of life for their constituents. These options can be achieved without additional costs if municipal services are property rationalized. Municipalities are free to continue with a single mill rate or any two rate combination.
How does a municipality decide among the many possible two-tier tax rates? The answer is:by levying as low a tax on improvement values and as high a tax on land values as possible. In a growing number of areas this has been politically feasible and economically beneficial.
For example, most municipalities in Australia and South Africa obtain all their property tax revenue from land alone - no taxes on improvements - while others, particularly in nearby Philadelphia PA., choose a variety of two rate options. Harrisburg,PA for example, uses a 4 to 1 land to building tax ratio.
Shall we in Aldborough continue with a property tax system that rewards underuse (speculation) and penalizes housing and jobs, or shall we create incentives by using the two-tier system that offers a proven record of success at increasing economic vitality in a community?
This Report is a specific example of how local government can implement positive tax reform in an efficient, non-disruptive and equitable manner.
References
Gaffney, Mason 'The Role of Ground Rent in Urban Decay & Revival" The Henry George Lecture, New York, St. John's University, Oct. 1988.
Harrison, Fred,"The Power in the Land" London,Shepheard-Walwvn,'83.
Peddle, Francis K." Henry George & the End of Tax Commissions" 1995. Evaluation of the Report of the Ontario Fair Tax Commiss'n,Mtl-Ottawa. Cities and Greed: Taxes, Inflation & Land Speculation,1994 Mtl-Ottawa Canadian Research Committee on Taxation, 1994.
Report of the GTA Task Force; Greater Toronto,Dr.Anne Golden. (Chair), Queen's Park Printer for Ontario, January, 1996.
The Two Tier Property Tax Report (Page 11)
by the Rodney two-tier Property-Tax Committee
SampleProperties
A. Rural: Description: 100 acres with house and barns
MVA Factored Assess Single Rate Taxes Two Rate Taxes $Difference (w/10% exempt.) (with/75% rebate) (with 75% rebate)
L94950 3760 336.25 350.75
B59092 2600 929.73 903.60
T154042 6360 1265.98 1254.35 -$11.63
B. Urban; Description: 70' x 179' with house MVA Factored Assess Single Rate Taxes Two Rate Taxes $Difference
LI 1000 484 173.07 180.64
B57933 2549 911.50 885.87
T68933 3033 1084.57 1066.51 -$18.06
Two-Tier Property-Tax Report (Final Page)
RECOMMENDATIONS by the Rodney Two-Tier Tax Committee :
1. That the necessary legislative changes be made by the local and provincial governments in order to implement a Two Tier Property Tax system in the Township of Aldborough.
2. That accurate assessments of land values, especially in the urban areas of Aldborough be an integral part of property reform in order to improve its simplicity and equity.
3. That the 15 percent spread between res/.farm and com./ind. mill rates be removed and that a common mill rate be used for all property classes.
4. That the Business Occupancy Tax (BOT) be eliminated, and the lost revenue be recovered, from an increased tax rate on all land assessments.
5. That Factors for property Classes be eliminated, and that appropriate mill rates be applied to non-factored Actual Value Assessments.
6. That garbage and recycle collection be removed from assessment and become a user-fee based on a per unil formula.
7. That Reassessments be conducted on an annual basis with the base year being no more than two years prior to the taxation year.
8. That the Township of Aldborough with the County of Elgin create a Fair Tax Committee, to study and implement local tax reform and assessment proposals, & make recommendations to the provincial gov'mt.
Acknowledgements to these organisations for moral and financial support, philosophical and technical advice, and computer services:
The Henry George Foundation of America, Philadelphia, PA. The Canadian Research Committe on Taxation, Ottawa, ON. The former Village of Rodney and the Township of Aldborough (which amalgamated (1993) into the new Township of Aldborough).
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