ADMINISTRATIVE REPORT

Date: September 14, 1998
Author/Local:H. Creighton/7220

RTS No. 67

CC File No. 1552

TO:	Vancouver City Council
FROM:	Director of Finance
SUBJECT:	1999 Interest Rate on Property Tax Arrears

RECOMMENDATION

THAT City Council instruct the Director of Legal Services to draw the necessary by-law to implement an interest rate of 10.00% for real property tax arrears to be effective after December 31, 1998, for approval on or before September 30, 1998.

GENERAL MANAGER'S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of the foregoing.

COUNCIL POLICY

It has been Council practice to set an interest rate for real property tax arrears annually, in accordance with the provisions of the City Charter. As explained in the body of this report, the interest rate on arrears approximates future market conditions and provides an incentive for taxpayers to pay their outstanding taxes.

PURPOSE

The purpose of this report is to recommend an interest rate for 1999 to be applied to arrears of real property taxes.

DISCUSSION

The City Charter provides that Council may charge an interest rate on real property taxes that are in arrears (outstanding after December 31st). Council should also note that interest charges on arrears are different than penalties, which are imposed on late payments of current property tax levies made after the due date. In setting an interest rate for arrears, we attempt to approximate market conditions in the next calendar year. Experience has shown that an interest rate which is at market, or slightly above market, encourages taxpayers to settle their outstanding taxes.

Conversely, an interest rate which is lower than market provides taxpayers with an incentive to defer payment of outstanding taxes in order to finance other expenditures. This puts the City in the position of acting like a bank or other lending institution which, clearly, is not desirable. The Charter provides that Council may, by by-law, passed not later than the 30th day of September in any year, impose an interest rate on real property tax arrears effective for the following year. The interest rate set out in the by-law cannot be greater than four percentage points above the prime interest rate prevailing on the 31st of July of the year of its enactment, as determined by the City's principal banker. The prime rate on July 31, 1998 was 6.50% (and was subsequently increased to 7.50% on August 27, 1998).

This report recommends that Council establish the arrears interest rate at 10.00% for 1999, which is 3.50% above the prime benchmark (and 2.50% above current prime rate). This 10.00% rate would be an increase from the rate in the previous year of 8.00%. At this point in time, it is difficult to predict what interest rates will be at the end of the year, and more so through 1999, but present economic indicators point to a relatively stable or dropping interest rate environment for the balance of 1998 and the next year.

* * * * *

(c) 1998 City of Vancouver