Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

General Manager of Corporate Services / Director of Finance

SUBJECT:

Tax Installment Prepayment Plan (TIPP)

 

RECOMMENDATION

COUNCIL POLICY

In March, 1998, Council approved the establishment of a voluntary monthly instalment plan for the prepayment of property taxes through pre-authorized charges to the taxpayer's bank account. TIPP was implemented on August 1, 1998.

PURPOSE

The purpose of this report is to recommend changes to TIPP and to recommend that the TIPP Clerk III position be made permanent.

BACKGROUND

Section 412 of the Vancouver Charter allows Council to accept prepayments from property owners that can be applied to property taxes billed at a later date. In March 1998, Council approved the implementation of a prepayment plan which became effective on August 1, 1998.

At the same time, Council approved the creation of one clerical position to handle the administrative and customer service process for a two year term at an approximate annual cost of $39,000 inclusive of fringe benefits. The status of this position was to be reviewed at the end of the temporary term based on ongoing workloads for TIPP.

The marketing of the program to-date has included pamphlets available on request, inserts with each of the advanced and final tax bills, advertising on the City Web page, limited telemarketing, advertising and mail outs.

The following chart shows the growth in enrolment since inception of the plan.

Tax
Year

Plan
Enrolment

Percent
Change

Amount

Percent of
Property
Accounts

1999

350

N/A

$108,600

0.2%

2000

1,626

364%

$384,958

1.0%

2001

2,823

74%

$814,511

1.8%

A survey of twelve cities and municipalities (including eight in the Lower Mainland) was conducted in order to compare the experience of other municipalities offering tax installment plans with the experience of the Vancouver plan and to review options for improvements. This survey highlights that:

· programs in other municipalities have been offered for an average of 7 years. The City's program has been in existence for 2 years, a factor which may explain the lower participation rate for the City.
· In all municipalities, the enrolment rate continues to increase year to year.

·The number of monthly instalments each year ranges from 10 to 12. There is no obvious link between the number of instalments and participation rates.
· There is some evidence that being able to offer an automatic final payment increases the level of participation. The City program requires taxpayers to make the final payment, along with the homeowner grant application outside TIPP.
· The majority of other municipalities surveyed in the Province offer interest on prepayments. The City does not offer interest.

DISCUSSION

Although there has been no formal survey of public opinion on the City program, the following table highlights some of the main issues that come from feedback through letters and telephone calls received by staff. The chart also provides comments and recommendations for program changes related to this input.

Issue

Option

TIPP requires prepayment of taxes, however, the City does not pay interest on the prepaid amounts.

Recommendation to pay interest on prepayments, effective August 1, 2001.

The final payment in July is not automatically withdrawn from the taxpayer's bank account.

Recommendation to automatically withdraw from the bank account any outstanding balances on both the advance and final billings.

TIPP is not similar to a "budget payment program" offered by utilities such as BC Hydro or BC Gas.

The City is restricted from offering this type of program because the City's property tax by-law. The by-law sets out the due dates for taxes as the second business day of February and July and imposes a 5% penalty on taxes unpaid after these dates. That is, property taxes billed must be paid by this date or a penalty must be charged on the outstanding balance.

TIPP spreads payments over 10 instalments rather than 12.

It is not recommended that the number of instalments be changed from the current 10 because, a period of two months is required within which to process the final instalment, current year final billing, and calculate the instalments for the next tax year.

This review has led to the following recommendations for changes in TIPP:

i) Payment of Interest on Account Balances

When TIPP was approved, Council established that interest would not be paid onprepayments. There were a number of reasons for this decision. First, the interest rate paid by financial institutions on savings accounts was very low at that time (0.5% per annum) so any potential earnings for the taxpayer was considered insignificant. Second, the program was offered as a convenience to taxpayers and, therefore, it was not considered necessary to offer an incentive for participation. Finally, the interest earned by the City on prepayments was necessary to recover the incremental cost of the program without impacting on taxpayers who chose not to participate in the program.

The feedback received by staff suggest that, if participation in the program is to increase, the City begin paying interest on the TIPP program prepayments. There are risks associated with paying interest. First, if the interest rate is higher than interest paid by financial institutions on similar amounts, property owners may be tempted to use the City as a financial institution. This would impact on the administrative costs of managing the program. Second, sufficient margin must be maintained between interest paid to participants and the interest earned by the City on prepayments to cover the direct and indirect costs of administering the program to avoid any impact on the general tax levy.

If Council agrees that interest should be paid, it is recommended that the City use published rates paid by the City's Corporate Banker on savings accounts as a guideline.

It is recommended that the City adopt a rate of 1.25% per annum for the period August 1, 2001 to July 3, 2002. The rationale for this recommendation is as follows:

ii) Automatic Withdrawal of Outstanding Balances Due on Advanced and Final Billing

Currently, participants are required to remit any outstanding balances on due dates for the advanced and final tax billings. This is an inconvenience for participants and often they miss making payments on time. Penalties are charged on any outstanding balances. It is recommended that any outstanding balances be deducted automatically from the participantsbank accounts on the due dates.

Outstanding balances can occur for a number of reasons:

iii) Timing of Implementation of Changes

It is recommended that the changes be implemented August 1, 2001. The date for implementation coincides with the commencement of TIPP for the 2002 tax year. It allows time for the programming changes to the property tax and payment processing systems, testing and implementation of system changes, communication to existing participants and promotion of the program to potential participants.

iv) Program Support

A full-time temporary clerical position was approved for two years at the inception of TIPP. This position performs the following ongoing functions:

· Maintenance of enrolment information (calculation and notification of instalment amounts, address changes, changes in instalment amounts, deletions because of property sales or at request of property owners, changes to bank account information, adding new enrolments, etc.).
· Preparation of monthly electronic files for transfer to the bank.
· Reconciliation of payment remittance electronic files before update of the tax system.
· Follow up on returned payments (NSF, erroneous accounts, changed account numbers)
· Reconciliation of sub ledger updates to the G/L and bank deposits.
· Answering enquiries from property owners and liaising with the bank.
· Notification of participants of changes.
· Administration of the HOG program as it affects participants.
· Promotion of the program.

It is recommended that this position be approved on a permanent basis.

FINANCIAL IMPLICATIONS

The current approved ongoing direct operating costs of the program is $48,500 covering both the clerical position and other administrative expenses. These costs are currently provided for within the Operating Budget. Other indirect costs of offering the program include administrative overheads and IT resources to support the program. The increase in participation would be absorbed within the existing program with only minor incremental administrative costs, mostly for postage and stationery.

The costs of the program are fully offset by short term interest earnings received by investing the prepayment amounts. It is anticipated that the costs associated with payment of interest will be fully recovered through increased short term interest earnings from increased participation.

COMMUNICATION STRATEGIES

To ensure taxpayers are aware of the enhancements of TIPP and to improve the participation level, the following activities will be completed before the August 1, 2001 prepayment cycle commences:

· Mail promotional correspondence to real estate lawyers and mortgage companies most likely to be in direct contact with property owners supplying them with pamphlets that can be distributed to clients.
· Working with Corporate Communication, develop promotional material for general distribution highlighting the changes to TIPP. Distribution will be accomplished through inserts with tax and utility bills, through the internet on the City's web page and advertisements.
· Working with Corporate Communications, Legal Department and the City's Corporate Banker, simplify the application form.

CONCLUSIONS

TIPP is a convenient option available to taxpayers for paying taxes. Participation is increasing with maturity of the program and user acceptance. TIPP also has benefits for the City in terms of improved cash flow and efficiency in processing tax payments. The program should continue to be supported. Prepayment options offered in other municipalities that have been in place for a longer time period have been successful with enrolment rates reaching as high as 17% of eligible tax accounts.

Taxpayers have requested that the City make improvements to TIPP. This report makes recommendations that will make the program more appealing to taxpayers and increase participation.

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