ADMINISTRATIVE REPORT
Date: August 2, 1995
TO: Vancouver City Council
FROM: Director of Finance
SUBJECT: 1996 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 11.00% for real property tax arrears to
be effective after December 31, 1995, for approval on or
before September 30, 1995.
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 1996 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, 1995 was 8.25%. This report
recommends that Council establish the arrears interest rate
at 11.00% for 1995, which is 2.75% above the prime benchmark.
This 11.00% rate would be an increase from the rate in the
previous year of 10.00%. 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 1996, but present economic
indicators point to a slightly rising interest rate situation
for the balance of 1995 and stable for the next year.
The Provincial Government's policy is to set their arrears
interest rate at 3% over prime, and their rate can be revised
three times per year. Their current rate is 12.75% based on
prime rate at April 15, 1995.
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