POLICY REPORT
FINANCE
Date: April 25, 2000
Author/Local: G. Merchant/7250
RTS No.01421CC File No. 1551
CS&B: May 4, 2000
TO: Standing Committee on City Services and Budgets FROM: General Manager of Corporate Services / Director of Finance SUBJECT: 2000 Property Tax Options CONSIDERATION
THAT Council approve a shift in the tax burden equal to approximately 1% of the 2000 general purposes tax levy (approximately $3.69 million), proportionately from Class 2 (utilities), Class 4 (major industrial), Class 5 (light industrial) and Class 6 (business/other) to Class 1 (residential) properties
DIRECTOR OF FINANCE COMMENTS
Consideration A deals with the issue of shifting the taxation burden from the non-residential classes to the residential class. While there is no policy governing the eventual split in the tax burden, Council has made decisions on this shift on an annual basis, based on recommendations from the Citizens Advisory Group on Property Taxation. It should be noted that, prior to the shift, the 2000 Class 1 to Class 6 ratio is estimated at 44.8% to 51.5% (including Solid Waste and Sewer user fees) representing a shift of 5.5% from the ratio in 1993.
COUNCIL POLICY
There is no standing policy on the issue of shifts to the relative shares of the taxation burden among property classes. Since 1994, Council has decided in each year whether to shift the tax burden among property classes, in the context of the other taxation issues at hand.
PURPOSE
The purpose of this report is to discuss various taxation policy options relevant to the 2000 taxation year.
BACKGROUND
1999 taxes for residential and business properties were based on three-year land averaged values. The overall tax levy was increased by 3.4%, evenly applied to all classes. Council did not shift the tax burden among property classes in 1999.
In 2000, taxable values in both the residential and business class have been relatively stable, with the great majority of properties in these classes having changes to taxable value of under five percent. Consistent with the past few years, land averaged values are to be used in the calculation of taxable value, for the residential and business classes. Council has approved the introduction of the Sewer Utility, the blending of tax rates for properties in class 5 and 6, as well as a 2.75% tax increase over 1999.
TAX IMPACTS: BASE CASE
The analyses presented here are based on samples of Class 1 and Class 6 properties, screened to eliminate those that are not eligible for land assessment averaging. It is important to note that the tax impacts of classes 2, 4, 5, 8 and 9 have not been modelled. It is expected that the impact on classes 2, 4 and 5 would be similar to the impact on class 6, and the impact on classes 8 and 9 would be similar to the impact on class 1.
The base case represents the impact of the following actions approved by council:… Three-year land averaging for the residential and business classes
… Removal of $12.9 million in sewer costs from the tax levy
… A 2.75% overall increase to the tax levy.Appendices B and C show the tax distributions for Class 1 and Class 6. With no shift in tax burden, the average change in taxes for the properties sampled is -2.2% for the residential class, and 2.3% for the business class. The difference in the change in taxes between the classes results from the introduction of the Sewer Utility and the blending of tax rates for classes 5 and 6.
TAX IMPACTS: SHIFT RELATIVE SHARE OF TAX LEVY AMONG CLASSES
The rationale for the one percent burden shift to the residential class is found in the 1995 report by the KPMG Consulting Group, Consumption of Tax-Supported City Services. The authors of this report recommend developing a rate-of-adjustment policy which allows for a shift in the tax burden to the residential class.
The members of the Citizens Advisory Group on Property Taxation support this policy, as set out in the April 2000 letter from the Chair (Appendix F).
To date, Council has not adopted any policy on a target for the distribution of the tax levy by property class, however, the issue has been presented to Council on an annual basis with shifts being approved in four of the last six years.
From 1983 to 1994, Council maintained the relative taxation burden between property classes at the levels which existed in 1983, allowing for adjustments to the burden levels resulting from reclassification, new construction or zoning changes. In four of the years since 1994, Council has altered the relative shares of the tax levy, as shown in Table 1.
Table 1. Relative Share of Tax Levy, Class 1 & Class 6
% TAX LEVY
% TAX LEVY
TAX RATIO FACTORS
1990 39.4% 54.9% 4.1 - 1991 39.4% 55.3% 4.2 - 1992 39.4% 55.4% 4.7 - 1993 39.3% 55.8% 4.5 - 1994 40.0% 54.8% 5.3 Shift $3.0 million to Class 1 1995 41.4% 53.4% 5.5 Shift $3.0 million to Class 1 1996 41.9% 53.2% 5.5 - 1997 42.9% 52.6% 5.2 Shift $2.9 million to Class 1 1998 43.8% 52.2% 5.4 Implement Solid Waste Utility 1999 44.2% 52.1% 5.1 - 2000 - No shift 44.8% 51.5% 5.2 Implement Sewer Utility 2000 - 1% shift 45.8% 50.7% 5.0
NOTES TO TABLE 1
1. Note that the tax rate ratio is affected by interventions such as land averaging and tax capping.
2. 1998 figures are significantly affected by the implementation of the solid waste utility in this year. Part of the new utility fee was for a recycling charge, which represented a $3.8 million increase in total paid by the residential class.
3. 2000 figures are affected by the implementation of the sewer utility. In 2000, class 1 (residential) will have $8.6 million in sewer costs levied through a user fee, while class 6 (non-residential) will have $4.1 million in sewer costs levied through a user fee.
4. The other property classes account for the remaining 4% - 6% of the tax levy (utilities, light industrial, major industrial, recreational/seasonal and farm).The charts in Appendices D and E compare the tax distributions under the base case, versus a $3.69 million shift in the tax burden to the residential class. The impacts of a shift are summarised in Tables 2 and 3, for the business and residential classes.
Table 2. Impacts of One Percent Shift in Levy, Class 1 Residential
Base Case 1% Shift $ Change % Change Tax Rate (per 1,000) $2.924 $2.995 $0.07 2.4% Tax Levy $154.2 m $157.9 m $3.7 m 2.4% Average 2000/1999 change in taxes -2.2% 0.1% - - Average 2000/1999 change in taxes -$25 $2 $27 - # properties with +10% increase
1,523 | 2,342 | - | - |
Table 3. Impacts of One Percent Shift in Levy, Class 6 Business
Base Case | 1% Shift | $ Change | % Change | |
Tax Rate (per $1,000) | $15.143 | $14.883 | ($0.26) | (1.7%) |
Tax Levy | $200.7 M | $197.3 M | ($3.4 M) | (1.7%) |
Average 2000/1999 change in taxes | 2.3% | 0.6% | - | - |
Average 2000/1999 change in taxes | $496 | $122 | ($374) | - |
# properties with +10% increase |
286 | 215 | - | - |
NOTES FOR TABLES 2 & 3
1. Class 1 and Class 6 based upon three-year land
averaged values, and a 2.75% tax increase is incorporated.
The other non-residential property classes (light industrial, major industrial and utilities) will also experience a 1.7% decrease in their levy and tax rates as a result of a burden shift.
CONCLUSION
The Director of Finance submits to Council for consideration, a one percent ($3.69 million) shift of the tax burden from the non-residential classes to the residential class.
APPENDIX A
SUMMARY OF MAJOR PROPERTY TAXATION
POLICY DECISIONS SINCE 1989
CITY OF VANCOUVER
CLASS 1 RESIDENTIAL |
CLASS 6 BUSINESS/OTHER |
|
1989 | … Capped land value increases at 61% | … Capped tax increases at 40% |
1990 | … No adjustment to taxation methodology | … Capped tax increases at 10.1% |
1991 | … Capped tax increases
at 5.5% … No limit on tax credit |
… Capped tax increases
at 7.5% … $400,000 limit on tax credit |
1992 | … Capped tax increases
at 6.0% … $5,000 limit on tax credit |
… Capped tax increases
at 10.0% … $100,000 limit on tax credit |
1993 | … Implemented
three-year land value averaging … Tax increases capped at 25% for select properties |
… Implemented
three-year land value averaging … Tax increases capped at 25% for select properties |
1994 | … Continued three year
land value averaging … Tax increases capped at 10% for select properties … $500 limit on tax credit |
… Continued three year
land value averaging … Tax increases capped at 10% for select properties … $15,000 limit on tax credit |
1995 | … Continued three year
land value averaging … No tax capping |
… Continued three year
land value averaging … Tax increases capped at 15% for select properties under a phasing out methodology … $10,000 limit on tax credit |
1996 | … Continued three year
land value averaging … No tax capping |
… Continued three year
land value averaging … Tax increases capped at 20% for select properties under a phasing out methodology … $7,500 limit on tax credit |
1997 | … Continued three year
land value averaging … No tax capping |
… Continued three year
land value averaging … Tax increases capped at 25% for select properties under a phasing out methodology … $5,000 limit on tax credit … Last year of tax increase capping |
1998 | … Continued three year
land value averaging … Implementation of solid waste utility |
… Continued three year land value averaging |
1999 | … Continued three year land value averaging | … Continued three year land value averaging |
2000 | … Continued three year land value averaging | … Continued three year land value averaging |
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