ADMINISTRATIVE REPORT

                                                Date:  August 30, 1996


   TO:       Vancouver City Council

   FROM:     Director of Finance

   SUBJECT:  1997 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 9.00% for
        real property tax arrears to be effective after December 31, 1996,
        for approval on or before September 30, 1996. 

   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 1997 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. 
                                      -2-


   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, 1996 was 6.25%.  This report recommends that
   Council establish the arrears interest rate at 9.00% for 1997, which is
   2.75% above the prime benchmark.  This 9.00% rate would be a decrease
   from the rate in the previous year of 11.00%.  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 1997, but present economic indicators point to
   a stable interest rate situation for the balance of 1996 and 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 9.00%.


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