SUPPORTS ITEM NO. 1 CS&B COMMITTEE AGENDA JUNE 27, 1996 POLICY REPORT FINANCE Date: May 28, 1996 TO: Standing Committee on City Services and Budgets FROM: Director of Finance, in consultation with the Director of Central Area Planning SUBJECT: New Trade and Convention Centre Facilities - Property Tax Implications CONSIDERATION A. THAT City Council support the principle that the proposed Trade and Convention Centre under consideration for downtown Vancouver not be required to pay property taxes. If Council approves Consideration Item A, the following are RECOMMENDED: B. THAT the property tax exemption apply only to the floor area utilized for the new trade and convention facility and not apply to the floor area used for commercial, retail, hotel or other space deemed ancillary to the direct operation of the facility. C. THAT City Council request that the Provincial Government take the necessary legislative action to achieve this tax exemption. D. THAT the City Project Manager notify the Provincial Government and the new trade and convention centre development proponents (Concord Pacific Develop-ments, Greystone Properties, and Marathon Realty) of the foregoing. GENERAL MANAGER'S COMMENTS The General Manager of Corporate Services submits A for CONSIDERATION. Should Council approve A then B, C and D are RECOMMENDED. CITY MANAGER'S COMMENTS The development of expanded convention centre facilities in the City will have a significant economic benefit, which falls primarily to the local economy and to senior governments through increased activity and new tax revenue. The City will not share directly in these benefits. However, in proceeding with the facility, the developer will pay all of the related infrastructure and ancillary public amenity costs so that there will also be no direct costs involved for the City. Moreover, it is not anticipated that the City will require additional public realm benefits, although individual developers may choose to provide these through the development proposal or rezoning processes. Support for a property tax exemption for the new facility is a tangible and meaningful way for Council to participate in the project and the City Manager therefore RECOMMENDS approval of A, B, C and D. COUNCIL POLICY There is no direct Council policy related to the taxation of the proposed new trade and convention facilities. Section 396 of the Vancouver Charter limits property tax exemption to properties of the City and Crown, charitable institutions, certain learning institutions and eligible heritage properties. In 1981, when dealing the proposed convention centre development at Pier B/C, Council agreed to exempt the centre from property taxes or senior governments from paying a grant- in-lieu of taxes. The exemption from taxes was limited to the trade and convention facility only and did not extend to ancillary uses. PURPOSE The purpose of this report is to provide Council with information about property tax issues arising from the development of the proposed trade and convention facility in downtown Vancouver and to seek Council consideration of a property tax exemption for those facilities. City Council is reviewing this matter at this time because the three proponents (Concord Pacific Developments, Greystone Properties and Marathon Realty) are proceeding to Stage Two of the New Trade and Convention Facilities Review Program and will be required to prepare financial proposals as part of their submissions, including property tax implications. BACKGROUND The Vancouver Trade and Convention Centre (VTCC) at Canada Place is situated on a federally-owned parcel and is operated by a provincial Crown corporation, B.C. Pavilion Corporation. Amendments to the British Columbia Enterprise Corporation Act were enacted in 1987 giving the B.C. Pavilion Corporation Crown agent status with all immunities enjoyed by the Crown. This ensured that the property of the corporation would be exempt from property taxation and the payment of grants-in-lieu of taxes. As a result, the existing trade and convention facility at Canada Place pays neither property taxes nor grants-in-lieu of taxes. This exemption does not extend to other facilities at Canada Place. For example, the Pan Pacific Hotel pays full property taxes and, although it is exempt from taxes by virtue of its federal ownership, the Port Corporation does make a payment-in-lieu of property taxes to the City related to the cruiseship terminal. This arose from an agreement among the City of Vancouver, Pier B/C Development Board and the National Harbours Board. Other properties in Vancouver accommodating trade and convention activities have varying property tax status: - B.C. Place is operated by B.C. Pavilion Corporation and pays neither property taxes nor grants-in-lieu of taxes. - GM Place and the Ford Theatre are owned and operated by private corporations and pay full property taxes. - Simon Fraser University (Downtown Campus) would have been required to pay property taxes because it is a lessee on privately-owned land. However, an amend-ment to the Vancouver Charter, Section 396(1)a(vi), was made in the late 1980s to exempt this facility and its convention space from property taxes. Beginning in 1995, Simon Fraser University began a token payment of grants-in-lieu of municipal property taxes under instruction from the Province. - Trade and convention facilities operated in hotels are fully taxable. DISCUSSION City Council has confirmed that it will not make a direct financial contribution to the proposed new trade and convention facility. However, Council could indicate its support for the project by agreeing to a property tax exemption for the facility. This would provide the new convention centre with a significant operating cost savings and give it the same property tax treatment as the existing convention centre located at Canada Place. 1. Rationale for a Property Tax Exemption Council s decision not to provide a direct capital contribution to the proposed new trade and convention centre was based on the fact that the City will receive no direct financial return from the development. Unlike the case of the federal or provincial governments, the City does not count among its sources of revenue any of the various taxes that the centre will generate nor does the City levy any non-tax charges beyond those for cost-recovery activities that arise as a result of its regulatory or service provision roles. Moreover, the City will be in a position of providing tax-supported municipal services to the centre whether or not property taxes are paid. However, there is no question that additional trade and convention facilities will provide a broader public benefit to the community in which the City will share. For example, increased tourism will result in better opportunities for business and employment. There will be the demand for additional hotel, restaurant and other commercial space that will benefit residents, as well as visitors, and have the potential to generate additional property taxation revenue to support a range of municipal activities. It is the availability of these benefits against which Council should consider the exemption of any new facilities from property taxation. In addition to acknowledging these indirect benefits and to providing a significant operating cost saving for the operator, Council support for a property tax exemption for the proposed site would also have the advantage of placing the new and old facilities on the same footing with respect to municipal property tax. Dealing with a property tax exemption at this stage of the proposal review process is difficult because there are a variety of possible ownership and operating arrangements, each with different implications for property taxes. For example, a facility owned and operated by the federal or provincial government would be exempt from property taxation by virtue of the involvement of the Crown. In this case, payments-in-lieu of taxes would depend on the willingness of the senior government to pay them. However, an equally likely scenario would see the facility owned and/or operated by a private company either on public or privately owned land. In these scenarios the facility would likely be taxable. While it is premature to determine the assessed values and taxes payable for any of the trade and convention centre proposals, preliminary analysis suggests those costs could be in the range of $4.0 million to $8.0 million (1996) annually, depending on the site chosen for the facility. Of this amount, approximately 55% ($2.2 million to $4.4 million) would be for municipal taxes with the balance due for schools and regional levies. If payments-in-lieu of taxes applied, the costs to the development would be similar. If the new facility qualifies for a tax exemption because it is owned and operated by a senior government, Council could agree to waive payments-in-lieu of property taxation. In the case of a taxable operator, Council does not currently have the legislative authority to provide a permanent property tax exemption. The result would be a situation in which the municipal portion of the property tax bill would have to be waived annually, likely by means of a grant requiring approval of two-thirds of Council. In both of these situations, only the municipal share of the tax bill could be waived, the balance being under the control of the other taxing authorities, most notably the provincial government for school purposes. If Council supports the creation of a similar property tax environment for the proposed trade and convention centre as exists for the VTCC at Canada Place, the most appropriate way to achieve it would be to request legislative action by the provincial government. This could come in the form of an amendment to the Vancouver Charter, as was the case with Simon Fraser University, or through passage of special purpose legislation, as was the case with the B.C. Pavilion Corporation. This course of action is recommended if Council agrees to tax exempt status for the project. 2. Property Taxes During Construction An issue closely related to the property tax exemption for the proposed projects is the application of property taxes during construction of the new centre. Currently, all three sites are either taxable (Concord and Marathon) or are subject to payments-in-lieu of taxes (Greystone). These payments will continue until such time as the proposed provincial legislative action is completed, perhaps including the period during construction. As with the longer term exemption put for consideration in this report, Council support should be exercised by encouraging the province to deal with this issue early in the process. Should appropriate legislative action not precede construction, staff will report back to Council on it options to free the developer from its municipal tax bill. 3. Other Facilities at the New Trade and Convention Centre Each of the proposed new convention centres includes a variety of ancillary uses related to the development, including hotels, commercial and retail space and/or cruiseship facilities. If Council supports tax exemption for the convention centre itself, these ancillary facilities should be excluded from that exemption even if they share an operator with the convention facilities. This ensures these commercial operations will be dealt with on a basis consistent with the hotel, retail and commercial operations elsewhere in the City and with the existing VTCC at Canada Place. 4. Other Related Issues a) Payment of Utility Fees While a property tax exemption may be a consideration for the proposed trade and convention centre, there is no justification for extending this exemption to utility (sewer, water and other) fees. These are charges imposed on users for the actual costs of using utility systems rather than for the general support of municipal services as is the case for property taxes. These costs are currently paid by the VTCC and should extend to the new facility. b) Regional Development Cost Charges The Greater Vancouver Sewerage and Drainage District is awaiting new provincial legislation that would allow collection of a regional development cost levy on all new development to offset the costs associated with some regional capital works. This charge is anticipated to be in the range of $0.50 - $1.00 per sq. ft. for commercial development and should apply to the new trade and convention centre. FINANCIAL IMPLICATIONS Each of the three sites under consideration currently pays either property taxes or a grant-in-lieu of taxes. Offering an exemption from property taxes would result in an immediate loss of tax revenue for the City. Currently the three sites under consideration pay annual general purpose property taxes in the amount of $300,000 - $500,000 respectively. With build-out of the new centre, the value of this tax exemption increases. For example, the trade and convention centre at Canada Place currently has an assessed value that would translate to approximately $2.7 million in property taxes, of which $1.5 million would be general purposes taxes. As noted above, property taxes on the proposed convention centre facilities could range from $4.0 - $8.0 million (1996) annually, depending on the site chosen for the facility and the level of development. If the full tax exemption is provided, the City will forego general purposes taxes in the range of $2.2 million to $4.4 million annually depending on the site chosen and the extent of the development involved. CONCLUSION Council support for an exemption from property taxes represents a significant financial contribution to the success of the new trade and convention centre. The City will forego revenue yet be obligated to provide normal municipal services. While it is premature to respond to each potential ownership and operational outcome, Consideration A and Recommendations B, C and D attempt to ensure that all proponents receive equitable treatment on property taxes. * * * * *