Town of Mount Royal

Two Tier Tax Impact Study

REPORT

OF

THE TAXATION COMMITTEE

OF THE

MOUNT ROYAL MUNICIPAL ASSOCIATION

April, 1998

Mount Royal, Québec

Page  1     Introduction and Acknowledgements

Section One: The Negative Effects of the Current Property Tax 2

Section Two: The Need for a New Approach to the Taxation of Property 4

Section Three: Proposal for a Two Tier Property Tax in Mount Royal 7

Section Four: Description of the Property Assessment Database in

            Mount Royal and the Budgetary Requirements of Municipality 8

Section Five: Two Tier Property Tax Options for Mount Royal 10

Section Six: Recommendations 17

Annexes

1. Single Tax Rate -- Percentage of Revenues from Building and Land Values

2. Triennial Roll - Summary of Land and Building Values by Property Class

3. Number of Taxable Vacant Lots by Property Class

4. Tax Rate History of Mount Royal from 1979 to 1998

5. Town of Mount Royal Budget 1998

6. Determination of Tax Rates

7. Scenario One -

8. Scenario Two -

1. Total Land and Building Values by Category

2. Spreadsheet Analysis of Commercial Property Tax Decreases and Increases under Scenario One

 

In early 1996, Ben Sevack, Chairman of the Taxation Committee of the Mount Royal Municipal Association, requested that a preliminary report be prepared by the Center for the Study of Economics (CSE) in Columbia, Maryland with respect to conducting a two tier or two rate tax analysis of Mount Royal's triennial assessment roll, 1995 - 1997. Some preliminary figures from that analysis were presented to the Taxation Committee on April 1, 1996.

Subsequent to the preliminary report by the CSE, the Taxation Committee obtained the electronic tape of the property assessment database prepared by the Montréal Urban Community (M.U.C.) for Mount Royal which includes land and building values and various types of property classification. The tape was in EBCDIC format which was then converted to D-Base format on CD-ROM. A full description of the database can be found in Section Four of this Report.

Municipal budgetary documents, property assessment database updates and various other explanations were provided by the Office of the Treasurer for the Town of Mount Royal. It should be noted that 1998 will be the fourth year of the current valuation roll which is an extension beyond the previously legislated triennial roll, 1995 - 1997. The next assessment roll will be biennial and should be deposited in September, 1998 for the 1999 - 2000 fiscal years. We do not believe there will be a substantial change in valuations with the return of the next roll. If, however, that turns out to be the case, then the figures in this Report will have to be revised and updated.

I would like to take this opportunity to thank the members of the Taxation Committee for their perseverance and support in seeing this undertaking through its various incarnations over the past several years. The Mayor of Mount Royal, Harry Schwartz, and the Office of the Treasurer, provided fiscal and budgetary documentation for which our Committee is grateful. The M.U.C. were very co-operative in providing the property assessment database in electronic format. Dr. Francis K. Peddle, Director of Research, of the Canadian Research Committee on Taxation (CRCT), wrote the Report and supervised the database analysis contained therein. Glenn Grignon of Raynon Corp. provided the technical support using Paradox for Windows in order to generate the various two tier options contained in Section Five. Harry Payne of the CRCT deserves much credit in doing the legwork necessary to obtain the electronic database and in deciphering its many codes.

The Taxation Committee hopes this Report will inspire a more fundamental re-thinking of our method of property taxation. By reducing the tax burden on buildings and capital improvements, governments can go a long way towards fostering better urban communities from an economic, environmental and aesthetic perspective.



ALL OF WHICH IS RESPECTFULLY SUBMITTED


BEN SEVACK

Chair

Taxation Committee

The Town of Mount Royal obtains revenue for purposes of municipal government by applying a mill or tax rate on the total value of all non-exempt real property within its jurisdiction. The tax rate is a combination of municipal and M.U.C. tax rates. The M.U.C. is the Town's evaluator and it is their officials who determine the value of properties in Mount Royal for property tax purposes. The Town does not differ from other property tax jurisdictions in Canada in this respect. Mount Royal's valuations for tax purposes are, however, relatively current and in this sense the Town is well ahead of other municipalities such as Toronto where assessments are hopelessly out of date.

The system of property valuation utilized in Mount Royal, often referred to as market value assessment, disguises the fact that a mill or tax rate applied to total property value is really two taxes -- one on the land or site value and one on the improvements located on the site. For assessment purposes, these two values are necessarily distinct and have been rightfully kept separate by the M.U.C. valuators. It is, however, from the standpoint of the politicians who insist on retaining one mill or tax rate for the total property value that the property tax system implodes from its own dead weight.

On average, slightly more than 57% of total property values, and 57% of the tax revenues derived therefrom, are attributable to building values, and 43% from land values. See Chart One in Annex One. The major part of the local property tax burden in Mount Royal therefore falls on capital improvements, that is on that component of the property the value of which is created by the application of individual labour and capital.

The two tier or two rate property tax reform advocated in this study is aimed at reducing the tax burden on the building component of real property. The two rate mechanism allows local municipalities to achieve genuine tax reform in an incremental and non­disruptive manner.

By overtaxing the building component, the current property tax system encourages numerous activities which are detrimental to the community. Several of these activities are cited here for illustrative purposes.

First of all, Mount Royal's property tax discourages improvements to properties. The tax system penalizes those who make economically and socially beneficial investments and improvements in their properties. On the other hand, the current property tax system underwrites and subsidizes those who neglect their properties or who take advantage of municipal services while caring little about the capacity of their property to serve the community. Inactivity with respect to land utilization places a cost burden on every municipality.

Secondly, the present property tax encourages land speculation and land price increases. It is a significant contributing factor behind inflation in the housing and commercial real estate markets. Mount Royal is an overwhelmingly residential community. Only 70 taxable properties out of a total of 5,201 are classified as vacant land. The latter constitutes only $13,998,500 in value out of a total taxable valuation base of $2,165,060,201 for 1998 or .064% of the valuational base. Mount Royal is therefore a built-up community. This, however, is a 22.8% increase in the value of vacant land over the 1997 fiscal year. Given the residential character of Mount Royal, 4,312 single family residences and multi-residential units, 136 condos versus 166 commercial and 115 industrial properties, there is wide variation in lot utilization in relation to permissible zoning ceilings, although this Report contains no actual property utilization analysis. The underutilization of land resources within a taxing jurisdiction is a greater impediment to efficient resource allocation than vacant lots per se. The undertaxation of land tends to increase land hoarding which leads to urban sprawl, thwarts effective urban planning and renewal, and increases land costs which makes housing less affordable.

Thirdly, the present municipal tax structure causes urban blight because it makes it relatively more profitable to let buildings deteriorate rather than to renovate or replace them. Taxes tend to reduce the base upon which they are levied, except a tax on land because a natural resource is not a product of human effort. Since the major part of the property tax falls on buildings, it follows that this tax encourages urban decay.

Fourthly, by discouraging investment in capital improvements and adding to the cost of land, the traditional property tax contributes to inadequate and substandard housing. Affordable housing is therefore possible only with some form of direct or indirect public subsidy. This is yet another example of where the method whereby governments levy taxes in and of itself necessitates increased government expenditures. Our methods of raising public revenue frequently exacerbate social overhead costs.

Property assessment and tax policy or the determination of what is taxable and the degree of taxation on that base are the two principal aspects of the property tax system. Both aspects must be based on sound principles so that the taxation of real estate meets the revenue requirements of local government and at the same time the method of taxation is harmonized with the aspirations and efforts of individuals and with the advancement of the overall well-being of the community. The importance of property taxation should not be underestimated in the furtherance of the broader objectives of public policy.

The assessment of real property for tax purposes must be fair, up-to-date and accurate. Our general analysis of the property assessment database for Mount Royal indicates that the M.U.C. has done a competent and professional job in its valuations. It is unfortunate, in our view, that the triennial roll has been extended for the 1998 taxation year. This has introduced unnecessary assessment lag into the return of the roll. Assessments or valuations should be done on an annual basis. The delay in the return of the next roll is probably not significant for Mount Royal as property values are stable. However, in a volatile real estate market assessment lag usually introduces unfairness and inequity into the property tax system. There are the usual appeal and review procedures in place in the M.U.C. so that ratepayers can challenge the assessments assigned to their properties.

Like most other jurisdictions in North America, Mount Royal applies a single tax rate to total property values. There are surtaxes on 80 serviced vacant parcels, according to the Treasurer. However, we were able to identify only 25 vacant serviced lots and only 21 of such lots which were surtaxed in the M.U.C. database. Total revenue from the surtax on serviced vacant lots in 1997 was only $147,000 out of total general real estate tax revenues of $28 million.

Section 486.2 of the Cities and Towns Act provides the statutory authority for such a surtax:

The amount of the surtax is determined by the council and may amount to up to 100% of the total real estate taxes referred to in subsection 1. The council may fix different amounts for serviced vacant land and for unserviced vacant land, in which case the amount fixed for the former must be higher than that fixed for the latter...

We support the legislative intent behind the surtax on vacant land. It is recommended that it remain in place even if the tax rate on land is significantly increased. Serviced vacant land surtaxed at 100% of total real estate taxes owing should see this surtax proportionately reduced when the tax burden on buildings overall falls below 50% of overall property tax revenues. The theory is to capture as close as possible 100% of the economic rent of the vacant parcel for public revenue.

Since vacant land owners are usually the most vociferous opponents of property taxation, it would be interesting for a study to be conducted to establish to what degree municipalities in Québec exercise their discretionary powers under section 486.2 of the Cities and Towns Act and actually place a significant surtax on vacant parcels.

The municipality receives grants-in-lieu from more senior levels of government, primarily provincial, as well as revenues from various user fees. The Office of the Treasurer declares that there are 103 tax exempt properties, while the database provided by the M.U.C. cites 202 separate records. The M.U.C. also puts the number of exempt units at 343, see Chart Two in Annex One. These exempt properties are schools, parks, municipal buildings, churches and synagogues.

The valuation of exempt properties at $139,346,247 by the M.U.C. is laudatory and should be continued. We have not determined the accuracy of these valuations. In general, exempt properties are usually undervalued in most jurisdictions. However, even at the given valuation it can be seen that exempt properties cost the taxpayers of Mount Royal $1,797,566 in foregone revenues out of total revenues of $28,013,557.

Most municipal politicians feel their hands are tied at budget time. The municipality needs so many dollars to provide services, the valuation or assessment is fixed and therefore the tax rates must be a certain percentage. Either services must be cut or the tax rate increased. It is thus always a lose/lose situation for politicians. They generally try to perform a balancing act within the status quo by incrementally raising taxes or incrementally reducing services so as to alienate the least number of voters.

The only viable alternative to the current lose/lose alternatives which local municipal councils face is a two tier or two rate tax policy. A two tier tax policy seeks to downtax buildings and proportionally uptax land values to a degree determined by local government. Why is this the only alternative? There are several important reasons:

(1) reducing the tax burden on buildings is an incentive to invest in a community and this has the effect of increasing the land value tax base;

(2) by encouraging more efficient land use there will be less parcels in the municipality not paying their fair share of the total tax burden in relation to the benefits they receive from the community;

(3) home building and renovation will not be penalized by the tax system but encouraged;

(4) land costs will be stabilized and thus the municipality will not have to worry about dramatic and volatile increases and declines in the property assessment valuation base;

(5) municipal costs are lowered since all serviced parcels pay taxes in relation to the costs of those services regardless of whether the lot is underutilized or not, which is a management decision of the individual landowners and not something that should be underwritten by the public finance system.

Efficient taxes, equitably applied and directly related to the cost of providing public services are the taxes of the twenty-first century. By adopting a two tier or two rate property tax as advocated in this Report, the Town of Mount Royal would be on the leading edge of an important new approach in future tax policy development.

A two tier or two rate property tax substitutes a pair of different mill or tax rates for the current system of one tax rate. In order to make the property tax system more transparent, it is now becoming customary to express the actual tax rate in terms of a percentage, like the income tax system, rather than utilizing the older and more confusing mill rates. For example, recent reforms in the property tax system in Ontario have abolished mill rates and substituted a percentage tax rate on the total market value of the property. Unlike Ontario, however, Mount Royal applies a single tax rate to all property classes.

By incrementally downtaxing the building component and uptaxing the land value component of the total market value of a property, it is possible to present to local governments a revenue neutral tax reform proposal, utilizing a simple algebraic equation, without causing any dramatic tax shifting between classes of properties or between individual property owners. This is especially true in Mount Royal given the homogenous residential character of the municipality.

Incremental redistribution of the tax burden between the two components of total property value can be easily illustrated. With differentiated land and building assessments one could propose an equalized revenue yield from both assessed values that required 50 mills, or say .50 per cent of market value and 100 mills on the land value or 1.0 per cent of market value, if a community's buildings constituted twice as much of the tax base as the value of the underlying land.

A two tier or two rate property tax can be expressed as a variable percentage of land and building assessments. For example, in Pennsylvania where there are approximately 15 cities on the two rate property tax system, the tax rate is often given as a percentage of land and building assessment. In Hazleton, the rates are 7.9% (79 mills) on land and 2.5% (24 mills) on buildings, as opposed to a former undifferentiated rate of 3.3% (33 mills) on both. In Oil City it is 5.55% on land, 2.74% on buildings instead of 3.28% on total property values. The tax burden on buildings in these Pennsylvanian cities and towns varies. For example, Pittsburgh receives 55.7% of its property tax revenue from land, while Aliquippa obtains 85.3% of its tax revenue from the land component or assessment.

These municipalities can and do change these percentages annually on the basis of economic need and the perceived and documented benefits that follow a shift from the taxation of buildings to the taxation of land values. A primary source of documentation is the increase in building permits in municipalities where there has been such a shift. We recommend that if Mount Royal moves to a two tier or two rate property tax that the issuance of building permits for both renovations and new homes be tracked and compared with historical patterns. The two tier property tax is a "carrot and stick" approach to enhancing the economic vitality of a community. The carrot, a lower tax on improvements, makes economic growth easier; the stick, a higher tax on land values, lessens the obstructions to economic growth.

The property assessment database obtained from the Montreal Urban Community for purposes of this study covers the 1995-1997 triennial roll. The database was converted from EBCDIC format (packed field data of 6250 bpi) and Paradox for Windows software was utilized for analytic purposes.

There are six lists of data classification in this database:

(1) List One - Units Appraised or a Description of Each Property

There is a substantial amount of property description data in this list, including the property I.D. no., municipal address, building category code or property classification, economic level, serviced vacant sites, frontage, depth, site area, effective age, building model and previous values.

(2) List Two - Identity of Owners

This list was not used in this study as it is unavailable due to the disclosure restrictions in the property tax legislation. The identification of property ownership is irrelevant for a tax impact study of this nature.

(3) List Three - Property Values

This list contains the crucial data for this study. It provides the separate land and building values for each property as well as whether the property is subject to a tax exemption.

(4) List Four - Cadastral Numbers

This list contains cadastral, or property boundary, data, such as frontage, depth, area and subdivision boundaries.

(5) List Five - Adjusted Values

This list was not available from the M.U.C.

(6) List Six - Summary of Totals

This database contains the total building and land values exempt and the total building and land values which are taxable.

The tax rate history of the Town of Mount Royal can be found in Chart Four of Annex One. This rate has gone from over 2% in the early 1980s to a stable average rate of approximately 1.3% since the early 1990s. The current rate for 1998 of 1.29% is comprised of .59% municipal and .70% M.U.C. tax rates.

The Town imposes an annual surtax on all vacant serviced lots that is equal to 100% of the total general, special and M.U.C. taxes imposed. This surtax has been in place at the 100% level since 1981.

There is 12% business tax on the annual rental values of all business establishments. There is also a $200 tax on taxicabs operating in the Town, if the taxi owner or taxi company does not pay the business tax.

The Town will have an overall budget in 1998 of $43,875,000. Taxes account for approximately $38 million of overall revenues with the balance coming from grants-in-lieu, primarily from the provincial government, user fees, other revenues, mainly water charges and government subsidies. See Chart Five in Annex One for a general breakdown of the 1998 budget.

Tax and quasi-tax revenues of approximately $38 million are made up of $28 million from the general real estate tax and the surtax on vacant lots, $2,250,000 from water charges, and $7,825,900 from the general business tax. The annual rental value of business establishments in Mount Royal has been determined to be $65,215,840. At a 12% tax rate this yields revenues of $7,825,900.

The business tax rate in Mount Royal is very high. The economic theory behind the two tier principle of taxation requires that this tax be phased out and abolished. Since this tax comprises approximately 20% of the overall revenues of the municipality there would have to be an immediate increase of 20% in local taxes on the residential property class in the Town in order to make up for the shortfall. This would be politically unacceptable.

It is therefore recommended that the business tax be phased out over a six year period with a 2% reduction in the rate per annum. This would constitute a $1.3 million shift in tax burden to the general real estate tax on an annual basis. There are, however, several mitigating factors. The reduction in the business tax would increase the annual rental of businesses in the Town. Over time, there would be less of a tax shift to the general real estate tax given the increased business valuational base. Secondly, by lowering the tax burden on capital improvements there will be on overall increase in general land valuations in Mount Royal. If the two tier tax rates remain at the 1997 and 1998 percentage of 1.29% in terms of total property values, then there will be an increase in revenues to the municipality which will substantially reduce the anticipated increase from the abolition of the business tax.

We have developed three two tier property tax options for the Town of Mount Royal, although in fact the third option is a single rate on the land value component only. Normally the first option in this type of tax impact study is a 50/50 split in revenues between the land and building components. This option is generally chosen on the basis that it is often the case that the overall assessment base is divided roughly 70% building value and 30% land value. This is definitely the case if there has been considerable assessment lag and the base year goes back to the 1970s. Studies in other jurisdictions, however, have shown that as the base year is moved up to the later 1980s the land component of total property value increases significantly while the building value component correspondingly decreases. In some cases, such as the reassessment that was conducted in Ottawa in 1992 for the 1993 taxation year, the percentage of land and building values became almost reversed.

The 50/50 split has not been chosen for Mount Royal because of the overall 57% building and 43% land values. In 1997 the taxable valuation base according to the Office of the Treasurer for the town is $2,172,875,301 with approximately $906,306,288 attributable to land and $1,266,569,012 attributable to building values. The M.U.C electronic database in its summary List Six section contains total taxable values of $2,161,778,101 with total taxable building values at $1,239,319,100 and total taxable land values at $922,459,001. The difference is attributable to the $11,396,300 valuation put on vacant land. For the analyses in this section we rely on the M.U.C. database.

It should be noted that these figures are not exactly reconcilable between the M.U.C. and the Treasurer of the Town or with the charts and tables annexed to this study because of constant additions and deletions, such as supplemental assessments, to the assessment database, rounding, and because all large databases of this sort contain inconsistencies and input errors. Nevertheless, the general structure of the M.U.C. database is reliable and correlates with local budgetary documents. These minor variations in figures do not constitute a significant statistical assault on the conclusions reached.

A shift to 50/50 split in Mount Royal would be so negligible, that is lowering the burden on buildings by only 7%, as to not constitute a significant reform of the system. It is therefore proposed that the first two tier option, or the first option after moving away from the current single rate system, be 43% of revenues from buildings and 57% from land. This is the reverse of the current situation and would result in a 14% reduction in the tax burden on buildings.

The next option chosen is 25% on buildings and 75% on land. Under this scenario the properties receiving the largest tax increases would be vacant lot owners, who would go from 1.29% to 2.27% of market value. The actual tax rate for 1997 and 1998 in Mount Royal is 1.29% per $100 of assessed value of all taxable immovables.

The final scenario presented is a pure land or site value tax on the land value component only. In order for the municipality to meet its current fiscal requirements this would require a slightly more than 3.02% tax rate on the land value only of a lot.

Those properties where the building to land value ratio is lower than the Town-wide average of 57/43% would see increasing degrees of taxation under the first through third scenarios. Those properties where the building to land value ratio is higher than the Town­wide average would enjoy decreasing degrees of taxation depending on which scenario is applied. See samples of taxes payable in Annex Three. Obviously those cases where there is no ratio, that is, the value is 100% land value, will face the most dramatic changes in taxation. Vacant parcels, however, constitute less than 1.4% (see Chart Three in Annex One for breakdown by property class) of the total number of parcels in the Town and .064% of the total taxable valuation base. Below are summaries of tax impact statistics under each scenario. The property assessment database allows for lot identification by specific identification number. It is therefore a simple matter of database identification to determine which owners receive tax increases and decreases under the various scenarios.

The overall average building/land ratio for the municipality was developed from the following sub-averages by property class:

Single Family Residential 55.04%/44.96%

Multi-residential 70.70%/29.30%

Condominium 73.47%/26.53%

Commercial 69.87%/30.13%

Industrial 42.76%/57.24%

Average Total Building Values/Land Values Ratio 57%/43%

From these sub-averages it can be seen which property classes will have the majority of properties therein see a tax decrease under any two rate scenario. The degree of the decrease or increase will depend on the extent of the shift in tax burden to the land value component. However, taxes will decline for a property overall if there are sufficient improvements to put it above the average building/land ratio. Such changes in the valuational mix will be quickly reflected in an owner's tax bills if there are annual assessments or valuations.

In the above sub-averages it can be seen that the majority of single family residences will receive a tax increase under a two tier proposal. On average, however, this increase will be slight given the nearness of its building/land ratio to the municipal average.

In the following tax change scenarios average decrases and increases have been calculated for all property classes where there is a ratio. Actual total land and building values can be found by property class in Annex Two. In addition, Annex Two contains the spreadsheet analysis for tax increases and decreases in commercial property taxes where the land rate is 1.73% and the building rate is .96%.

Two tier or two rate property tax scenarios:

Scenario One - 57% Revenues From Land Values/43% From Building Values

Tax Rates: Land -- 1.73%

Building -- .96%

(A) RESIDENTIAL 4508

Single Family Residential 4312

Multi-residential 60

Condominium 136

Subtotal 4508

Properties above overall building/land ratio

Single Family Residential 1675

Multi-residential 51

Condominium 120

Subtotal 1846

Properties below building/land ratio

Single Family Residential 2637

Multi-residential 9

Condominium 16

Subtotal 2662

Average single family residential property tax bill $4,330.25

Average multi-residential property tax bill per total property value $22,552.00

Average condominium property tax bill per condominium $1,725.00

Average decrease in single family residential property tax bill $173.92

Average increase in single family residential property tax bill $199.23

Average decrease in multi-residential property tax bill per total property value $2,179.00

Average increase in multi-residential property tax bill per total property value $177.58

Average decrease in property tax bill per condominium $197.59

Average increase in property tax bill per condominium $52.73

(B) COMMERCIAL 166

Above overall building/land ratio 99

Below building/land ratio 67

Average property tax bill $25,915.00

Average decrease in property tax bill $4,006.04

Average increase in property tax bill $1,040.97

(C) INDUSTRIAL 115

Above overall building/land ratio 40

Below building/land ratio 75

Average property tax bill $23,934.00

Average decrease in property tax bill $2,187.76

Average increase in property tax bill $1,144.96

Total number of properties where taxes are decreased 1985/4789

Total number of properties where taxes are increased 2804/4789

Scenario Two - 75% Revenues From Land Values/25% From Building Values

Tax Rates: Land -- 2.27%

Building -- .56%

(A) RESIDENTIAL

Average single family residential property tax bill $4,193.50

Average multi-residential property tax bill per total property value $22,552.00

Average condominium property tax bill per condominium $1,725.00

Average decrease in single family residential property tax bill $347.79

Average increase in single family residential property tax bill $483.07

Average decrease in multi-residential property tax bill per total property value $4,784.99

Average increase in multi-residential property tax bill per total property value $419.10

Average decrease in property tax bill per condominium $427.70

Average increase in property tax bill per condominium $126.64

(B) COMMERCIAL

Average property tax bill $25,915.00

Average decrease in property tax bill $8,696.43

Average increase in property tax bill $2,458.21

(C) INDUSTRIAL

Average property tax bill $23,934.00

Average decrease in property tax bill $4,609.15

Average increase in property tax bill $2,734.24

Total number of properties where taxes are decreased 1985/4789

Total number of properties where taxes are increased 2804/4789

Scenario Three - 100% Revenues from Land Values

Tax Rate = 3.02%

(A) RESIDENTIAL

Average single family residential property tax bill $4,193.50

Average multi-residential property tax bill per total property value $22,552.00

Average condominium property tax bill per condominium $1,725.00

Average decrease in single family residential property tax bill $666.10

Average increase in single family residential property tax bill $794.70

Average decrease in multi-residential property tax bill per total property value $8,465.16

Average increase in multi-residential property tax bill per total property value $733.59

Average decrease in property tax bill per condominium $768.88

Average increase in property tax bill per condominium $209.88

(B) COMMERCIAL

Average property tax bill $25,915.00

Average decrease in property tax bill $15,597.94

Average increase in property tax bill $4,127.53

(C) INDUSTRIAL

Average property tax bill $23,934.00

Average decrease in property tax bill $8,465.75

Average increase in property tax bill $4,551.29

Total number of properties where taxes are decreased 1985/4789

Total number of properties where taxes are increased 2804/4789

Average tax decreases and increases in the above scenarios were calculated by totalling the land and building values in each group, multiplying these values by the separate land and building tax rates, and then averaging increases and decreases above and below the benchmark building/land ratio of 57/43%. See the end of the spreadsheet in Annex Two for the formula.

The statistics from the first two scenarios are graphically presented in Charts Seven and Eight in Annex One. Several observations should be noted with respect to these statistics. First of all, it is generally the case that on average residential properties, especially multi­residential, have close to or higher building to land ratios than the municipal-wide average. The Mount Royal commercial property is substantially above the average. The amount of their tax decrease under a two tier proposal depends upon two factors, the degree to which they are above the municipal-wide average and the degree to which there is a shift in the tax burden to the land value component. The above statistical summaries show that the greater the degree of taxation of the land value component the higher the tax savings for those properties above the average building/land ratio. Tax increases on smaller value properties could be alleviated by a valuation exemption on improvements.

Secondly, industrial properties generally tend to be underutilized, that is, their building to land ratio is below the average of the taxing jurisdiction. This is true of 66% of industrial properties in Mount Royal. Again the above statistical summaries confirm this observation. These properties can sustain a greater degree of economic activity. The two tier proposals cited above would allow to varying degrees an increase in that economic activity without fear of a tax penalty. It is probable that owners of industrial property are absentee corporate owners.

Thirdly, slightly more than 60% of commercial property in Mount Royal is above the average building/land ratio. This means that commercial property owners in Mount Royal will receive a tax break under any of the two rate proposals in this study. The amount of the tax savings will depend on the extent to which the building value is above the average building to land ratio. These commercial property owners will further benefit if the business tax is reduced and eventually abolished.

1. That the Town of Mount Royal seek provincial authority to adopt a two tier or two rate property tax.

2. That the M.U.C. be requested to valuate Mount Royal for property tax purposes on an annual basis.

3. That the surtax on vacant land remain in place, but reduced proportionately in relation to the increase in taxes on land values.

4. That the valuation of exempt properties by the M.U.C. be continued and further analyzed for accuracy.

5. That the business tax be phased out over a six year period with a 2% reduction in the rate per annum.

Annex One

Annex Two

Annex Three