SUPPORTS ITEM NO. 3
                                           CS&B C0MMITTEE AGENDA
                                           APRIL 24, 1997

                                 POLICY REPORT
                               PROPERTY TAXATION

                                           Date: April 8, 1997 
                                           C.C. File No. 1551-1

   TO:       Standing Committee on City Services and Budgets

   FROM:     Director of Finance

   SUBJECT:  Additional Taxation Policy Considerations for 1997


   RECOMMENDATIONS

        A.   THAT  Council instruct the Director  of Finance to implement a
             1997 Property  Tax Limitation  Program for Class  6 (business)
             properties,   along  the  lines  and  with  the  qualification
             criteria  discussed in  this report.   The  Limitation Program
             would be  enabled under Section  173 of the  Vancouver Charter
             and  would require that Council pass a requisite by-law with a
   t  w  o  -  t  h  i  r  d  s                   m  a  j  o  r  i  t  y  .


        B.   THAT  Council  instruct  the  Director of  Legal  Services  to
             prepare a  1997 Property  Tax Limitation by-law  applicable to
             Class  6  (business)  properties, containing  the  tax capping
             parameters outlined in this  report, for submission to Council
             for approval May 13, 1997.

        C.   THAT 1997  be the final  year of  the tax capping  program for
             Class  6 (business) properties, and that  this be indicated on
             the tax bills.


   CONSIDERATION

   The Director of Finance submits the following for CONSIDERATION.

        D.   THAT  Council approve  a 3.0%  increase to  the tax  levies of
             Class 2 (utilities), Class 4 (major industry), Class  5 (light
             industry) and Class 6 (business/other), and a 6.6% increase to
             the Class 1 (residential), Class 8 (seasonal/recreational) and
             Class 9  (farm) tax  levies, representing  an increase  to the
             overall tax levy of 4.5%.

   The Citizens   Advisory Group on Property Taxation submits the following
   recommendations for CONSIDERATION.   The Chair and other members  of the
   group may wish to address Council on this  issue. An accompanying letter
   from the Chair (see Appendix E) elaborates on their position.


        E.   THAT  as  an  alternative  to the  differential  tax  increase
             described   in   Recommendation   D,   Council    approve   an
             across-the-board  4.5%  tax  increase,  combined  with  a  one
             percent  tax  burden shift  from  the  non-residential to  the
             residential classes.

        F.   THAT Council approve a  blended single tax rate to  be applied
             to  Class   5  (light  industrial)  and   Class  6  (business)
             properties, and that  this blended  rate be phased  in over  a
             period of five years.


   GENERAL MANAGER S COMMENTS

        The General Manager of Corporate Services RECOMMENDS approval of A,
        B and C, and submits D for CONSIDERATION.  

        Consideration items E and F are submitted by the Citizens  Advisory
        Group  on Property Taxation and are included in this present report
        in  order to  consolidate our  presentation on  additional taxation
        policy  considerations for  the 1997  taxation year.  Item E  is an
        alternative to item D and advances the premise outlined in the KPMG
        Consumption  Report  of  gradually  shifting the  tax  burden  from
        non-residential  properties  to  the residential  class  through an
        annual 1%  shift over a  five-year period.  In tandem  with the  1%
        shift,  the  Group  is  recommending a  4.5%  across-the-board  tax
        increase.  I  note for  Council  that the  tax  distribution curves
        produced by E are almost identical  to the result produced by D, as
        shown  in Charts 2 and  4 of Appendix D of  this report. Given that
        Council did not  approve a similar  1% burden shift  recommendation
        last year, and  if Council is  disposed to approve  a burden  shift
        this year, I RECOMMEND approval of D.

        Item F deals  with the notion of blending the tax  rate for Class 6
        (business and other) and Class 5 (light industrial) properties. The
        discussion later  in this  report develops  the rationale for  this
        position. Based on relative consumption of City services, a blended
        tax  rate for the  two classes of  non-residential properties makes
        sense, especially  after the City implements its  sewer utility and
        the proposed  TSS/BOD charge  on sewerage  at  the regional  level.
        Given  that the  Group is  recommending a  phase-in period  of five
        years, my suggestion  is for Council  to defer action on  this item
        until  the sewer  utility is  in place  (likely 1998)  and instruct
        staff to report  back on the tax burden impacts associated with the
        utility implementation alongside a staged phase-in of a blended tax
        rate. The dynamics  of those  initiatives may allow  for a  shorter
        phase-in period than is recommended.


   COUNCIL POLICY

   Council  policy  has been  to  keep  property taxes  at  affordable  levels  by holding  year-over-year  tax  increases to
     inflationary levels.   In 1996, there  was a 0.1%  increase to the general  tax levy.  Given the  recent provincial budget
     cutbacks in revenue-sharing,  Council has made a decision  to increase the City s  general tax levy by 4.5% for 1997.   On
     February 4,  1997, Council recommended  that  ... the  Director of  Finance be instructed  to report back  to Council with
     policy options  around the  implication of  the 1997 property  tax increase  approved by  Council this  day, including  an
     exploration of weighting the tax increase a little more on the residential sector. 

   From 1983 to  1994, Council maintained the share  of the 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 1994, Council altered the burden
   proportions  slightly by  shifting  approximately one  percent of  total
   taxes  from  the business  class  to the  residential  class.   In 1995,
   Council again shifted approximately one percent of the total tax burden,
   proportionately from  the utilities, major industry,  light industry and
   business  classes to  the residential  class.   The rationale  for these
   shifts  was based on the  allocation of garbage  collection and disposal
   costs to the appropriate customers.

   In 1996, the  Citizens  Advisory Group on Property  Taxation recommended
   that Council shift an  additional $3.2 million of the general tax burden
   proportionately  from  the  non-residential classes  to  the residential
   class.   Council, however,  decided not to undertake  a further shift in
   the tax burden for the 1996 taxation year.

   Since 1992,  the residential,  recreational and  farm classes  have been
   grouped together  in order to  establish a  common tax rate  for billing
   purposes.   Since 1993, Council has used three-year averaged land values
   in  the calculation  of residential  and business  property taxes,  as a
   means  of buffering the tax  impacts of large  year-over-year changes in
   land values for individual  properties.  In February 1997,  City Council
   recommended that land averaging  be used to calculate taxable  values in
   Class 1 and Class 6 for the 1997 taxation year.

   PURPOSE

   The  purpose of this report  is to recommend  additional taxation policy
   considerations to Council for implementation in the 1997 taxation year.


   SUMMARY

   This report  presents Council with  several tax calculation  options for
   the 1997 taxation  year.  Impacts of the following  taxation options are
   analysed in this report:

        1. a differential tax increase among property classes, 
        2. a single blended  tax rate for  the light  industrial class  and
           the business class, 

        3. a  differential  tax  increase among  property  classes combined
           with a  single blended tax  rate for the  light industrial class
           and the business class, and 
        4. a tax capping program for the business class (Class 6).

   While there  are several options  to choose  from, none  of the  options
   drastically  changes the tax rates  for the business  or the residential
   class.  The largest impact of any  of the options modelled for either of
   these classes is  a two  percent increase to  the residential tax  rate.
   Note  that Option  #1  is  the  only  option  that  impacts  residential
   properties.

    TABLE 1. Summary of 1997 Taxation Options for the Business Class (Class
                                      6)

                            Council-   Blended     Total
                       Directed      Rate   Class 6             Average
                       Increase   Class 5  Tax Levy   Class 6   General
       Scenario        to Class   & Class        ($  Tax Rate       Tax
                         6 Levy         6  millions            Increase
                                                  )

                           4.5%        No    $185.8   $14.740      6.5%       Base Case

       Option #1 -                     No    $183.1   $14.529      5.0%
       Differential        3.0%
       Increase
       Option #2 - 
       Blended Tax         4.5%       Yes    $188.0   $14.920      7.8%
       Rates
       Option #3 -
       Differential        3.0%              $185.3   $14.706      6.3%                                      Yes
       Increase &
       Blended Tax
       Rate
       Option #4 -
       Tax                 4.5%              $185.8   $14.762      6.7%
                                       No       Capping/Base
       Case
      TABLE 2. Summary of 1997 Taxation Options for the Residential Class
                                   (Class 1)


                                       Council-Direct                             Total                                                          Blended Rate
                                       ed Increase to                           Class 1                           Average                                                             Class 5 &
                                         Class 1 Levy                          Tax Levy          Class 1      General Tax                                                               Class 6
            Scenario                                                       ($ millions)         Tax Rate         Increase
            Base Scenario                        4.5%              n/a           $146.4           $2.747             4.2%
            Option #1 - 
            Differential Increase                6.6%              n/a           $149.3           $2.802             6.3%


   BACKGROUND

   In  recent years, increases to the City  of Vancouver tax levy have been
   equal to or lower  than the rate of inflation.  In  spite of this, taxes
   on  some individual  properties have  fluctuated  greatly due  to marked
   year-over-year  changes  in  assessed  values.    In  order  to  provide
   temporary relief from the biggest increases, City Council chose to limit
   tax increases in 1989.   In each year  from 1989 to 1995,  tax increases
   were capped within the business and/or residential classes (see Appendix
   A  for  a history of tax capping).  In 1995, tax capping for residential
   properties  was  eliminated, and  a  phase  out program  for  commercial
   properties was implemented.

   This year s option for a differential tax increase has arisen out of the
   public consultation process  undertaken by City  Council to address  the
   budget shortfall, which has resulted  from sudden cutbacks in provincial
   revenue sharing.  The option of creating a single tax rate for the light
   industrial  and  business classes  has  been proposed  by  the Citizens 
   Advisory Group on Property Taxation.

   The Citizens  Advisory Group on Property Taxation

   The Citizens  Advisory Group on  Property Taxation (CAGPT) was formed in
   March  1996.   The  mandate of  this group  is to  provide  Council with
   community input on taxation issues, by commenting on taxation matters as
   they appear before Council.  The group is comprised of a balanced mix of
   business, residential and academic representatives, and  all members are
   residents  of Vancouver.   The  CAGPT is  the successor  to two  earlier
   groups with  similar mandates: the  Property Tax Task  Force (1993/1994)
   and the Property Tax Advisory Panel (1994/1995).

   The Property Tax Task Force submitted a report to Council in April 1994,
   which contained fourteen recommendations regarding the property taxation
   and  assessment systems.   Among  these recommendations  was one  that a
   study of consumption of  residential and non-residential consumption  of
   city services be undertaken.  Council commissioned such a study, and  in
   April 1995 KPMG Management  Consulting submitted its report to  Council,
   entitled  Study of Consumption of Tax-Supported City Services.   

   At that time, Council instructed the Director of  Finance to report back
   on  a longer-term  taxation  policy  that would  take  into account  the
   findings of this report, and the related recommendations of the Property
   Tax Advisory Panel.   The formulation of  a longer term  taxation policy
   was  to include the  following considerations: taxation  policy based on
   benefits, services and the ability to pay; tax write-off  opportunities;
   and, differential  tax rates within  classes of property.   These issues
   are among those now  being considered by the  CAGPT.  Both the  Property
   Tax Task Force report  and the KPMG Consumption  study are on file  with
   the City Clerk.

   The CAGPT has made some recommendations relating to the issues contained
   in this  present report.   A letter  from the Chairman  of the  group is
   circulated with  this  report, indicating  the group s  position on  the
   issues of tax capping, blending  light industrial and business class tax
   rates and, a differential tax increase among classes.

   The 1996 Taxation Year

   A  summary  of  last  year s  taxation  policies  is  provided  here  as
   background.   In 1996, taxes  for residential properties (Class  1) were
   based on  three-year land averaged  values (1996 improvement  value plus
   average of 1994, 1995 and 1996 land values).  No tax capping was applied
   to this class.   Taxes for business properties (Class 6) were also based
   on three-year  land  averaged  values, and  a  20% cap  was  applied  to
   year-over-year overall tax increases,  under a phasing out  methodology.
   A maximum credit of $7,500 was allowed.   There was no shift in the  tax
   burden among classes in 1996.


   DISCUSSION

   The impacts  of statistical modelling of the  following taxation options
   are presented in this report:  (1) a differential (unequal) tax increase
   among the property classes, (2) a blended tax  rate for the business and
   light industrial classes, (3) these  first two options combined, and (4)
   a 25% tax cap for business class properties.

   Interpreting the Results

   In assessing the various  taxation options, it  should be noted that  an
   option  that is  good  for the  class as  a whole  will  not necessarily
   benefit  an  individual  property.    For  example,  capping  large  tax
   increases  will  result  in   less  properties  having  extremely   high
   year-over-year increases, but, those properties not  receiving a tax cap
   will pay slightly higher  taxes as a consequence.   This is because  the
   total tax levy collected from  a class is the same with  and without tax
   capping.

   Also,  the various  taxation options  may  have opposing  impacts on  an
   individual property.  For example, tax capping can lower the total taxes
   paid by an individual business property, while at the same time blending
   the Class 5 and Class 6  tax rates will increase the taxes paid  by that
   same property.

   Note that a   Council-directed tax increase  is the  percentage increase
   by which Council chooses to increase the  tax levy for each class.  This
   is distinct from the  average tax increase  for each class, which is the
   mean  change in  year-over-year taxes  for  all properties  in a  class.
   While the first is a decision, the second is an outcome.  Year-over-year
   changes in taxes paid by a property are a function of two variables: (i)
   the  change   in  taxable   value  of  that   property,  and   (ii)  the
   Council-directed  tax  increase  for  that  property s  class. For  this
   reason, the Council-directed tax increase  is not likely to be  the same
   as the average tax increase for each class.

   All analyses are done on sub-samples of Class 1 and Class 6  properties,
   screened for those that have been transferred into the class in the last
   year, those that are  exempt from taxation, and  those that did not  pay
   taxes  in 1996.   Properties  are included  in the  sample, but  are not
   eligible for a  tax cap, if  they have new  construction or if they  are
   vacant.  A large proportion  of both residential and business properties
   with  the greatest  year-over-year tax  increases have  at least  one of   these characteristics.



   OPTION #1: DIFFERENTIAL TAX INCREASE

   On February 20, 1997,  Council approved a  4.5% increase to the  general
   tax  levy,  and directed  staff to  explore  weighting the  tax increase
   slightly  more on the residential sector.  Historically, any increase to
   the general tax  levy has been  spread evenly across  all classes.   The
   option  of a differential  tax increase  arose out  of the  City Choices
   public consultation  process,  the Mayor's  Forum,  and the  Angus  Reid
   survey  of  both residents  and businesses.    Angus Reid  reported that
    ...68% of business community members surveyed believe the current level
   of property  taxes they pay  are  too high ,   a full 22%  more than for
   residents.   Further,  Angus Reid  reported that over  60% of  residents
   surveyed supported paying an additional eight percent in property taxes,
   to  help maintain the  level of services  they currently receive.   This
   compares to only one-third  of all business respondents supporting  a 4%
   tax increase.

   As  an alternative  to an  evenly apportioned  tax increase,  the option
   considered  here applies  a 3.0%  increase to  each class,  representing
   inflation  and service growth factors  in the budget.   The remainder of
   the tax  increase, representing Council s alternative  to deeper service
   cuts,    is     applied    proportionately    to     the    residential,
   seasonal/recreational and farm classes.   The effect of this is  a three
   percent increase  to the levy  of each class except  for the residential
   classes, which incur a 6.6% increase.

   Impacts of a Differential Tax Increase

   The  application  of  a  differential tax  increase  is  essentially the
   equivalent of a moderate shift in the tax burden from  all other classes
   onto  the residential class, of  $2.9 million.   With a differential tax
   increase, a tax increase of $9.2 million is added to the residential tax
   levy, as compared  to $6.3  million with  an across-the-board  increase.
   Correspondingly,  with  a differential  increase,  the  increase to  the
   business class  levy is $5.3 million, as compared to an increase of $8.0
   million with an across-the-board increase.  The business class pays $2.7
   million less  than it  otherwise would.   Under this  option, the  other
   property classes collectively pay  approximately $200,000 less than they
   otherwise would.  
   The following  tables  show the  impact of  this option  on overall  tax
   levies and tax rates.

      TABLE 3. Implications of a Differential Tax Increase Among Property
                               Classes, Tax Levy

        


                                                 Tax Levy with              Tax Levy with
                                               Across-the Board              Differential
                                                      Increase                   Increase              Difference 
                                                   ($ millions)              ($ millions)              in Tax Levy

               Residential (1),
               Recreational (8) & Farm
               (9)                                       $146.7                    $149.6             + $2,900,000
               Utilities (2)                               $7.1                      $7.0               - $102,000
               Major Industry (4)                          $4.1                      $4.1                - $60,000
               Light Industry (5)                          $5.0                      $4.9                - $72,000

               Business (6)                              $185.8                    $183.1             - $2,666,000
               Total                                     $348.7                    $348.7                       $0


           TABLE 4. Implications of a Differential Tax Increase
                    Among Property Classes, Tax Rates

        



                                                       Tax Rate                  Tax Rate
                                               Across-the-Board              Differential               Difference
                                                       Increase                  Increase              to Tax Rate
               Residential (1)                           $2.747                    $2.802                  + $0.06
               Utilities (2)                            $31.826                   $31.369                  - $0.46
               Major Industry (4)                       $31.444                   $30.993                  - $0.45

               Light Industry (5)                       $27.127                   $26.738                  - $0.39
               Business (6)                             $14.740                   $14.529                  - $0.21
               Recreational (8) & Farm
               (9)                                       $2.714                    $2.767                   +$0.05


        Chart  1 of  Appendix  D  shows the  distribution  of  tax
        increases in the business  class with an  across-the-board
        4.5%  increase.   Chart  2 compares  this distribution  to
        that  resulting from a 3.0%  increase to the Class 6 levy.
        The  tax rate for Class  6 drops by 21 cents (1.4%) if the
        levy  is  increased by  3.0%  rather than  by  4.5%.   The
        average  increase  in  general  taxes  paid  for  Class  6
        properties   decreases   to  5.0%   with  a   differential
        increase,  compared  to   6.5%  with  an  across-the-board
        increase.

        Chart  3 shows  the distribution  of tax  increases in the
        residential class with an across-the-board 4.5%  increase.
        Chart  4 compares this distribution to that resulting from
        a 6.6% increase  to the Class  1 levy.   The tax  rate for
        Class  1  increases  by 6  cents  (2.0%)  if the  levy  is
        increased by  6.6%  rather  than  by 4.5%.    The  average
        increase  in  general taxes  paid for  Class 1  properties
        increases to  6.3% with a  differential increase, compared
        to 4.3% with an across-the-board increase.


        Residential tax distributions are  shown in the  following
        table.      It   is  noted   that   the   large   majority
        (approximately  90%)  of  those  properties   with  a  tax
        increase of over 20%  are either vacant  or have increased
        in value due to new construction.


             TABLE 5. Class 1 Tax Distribution, General Taxes

                          # Properties          # Properties
                        Across-the-Boa          Differential
        Overall Tax                 rd   % of       Increase    % of
        Increase,             Increase Sample         (6.6%)  Sample
        1997/1996               (4.5%)

        <= 0%                   13,526    11%          7,071      6%
        0% - 2%                 19,884    17%          6,137      5%
        2% - 5%                 48,794    41%         37,911     32%
        5% - 7%                 16,547    14%         30,118     25%
        7% - 10%                12,173    10%         22,301     19%

        10% - 20%                5,568     5%         12,581     11%
        20% - 30%                  737     1%          1,023      1%
        30% - 50%                  465   < 1%            501    < 1%
        > 50%                      726   < 1%            777    < 1%
                               118,420   100%        118,420    100%



        OPTION   #2:  BLENDED  TAX  RATES  FOR  BUSINESS  &  LIGHT
        INDUSTRIAL CLASS

        A majority  of the members of the Citizens  Advisory Group
        on  Property  Taxation  feel  that  there  is  not a  good
        rationale  for a discrepancy  in the  tax rates  for light
        industrial and  business properties,  and has  recommended
        that  the rates for the two classes be blended to a single
        rate, through a multi-year phasing plan (see  accompanying
        letter from the  Chairman of  the CAGPT).   The  rationale
        for this recommendation is  based on the  fact that  there
        is very little  distinction between  properties classified
        as  either business  or light  industrial.   Properties in
        both  classes are assessed  at market  value, and both are
        compatible with mixed use developments.

        In  1996, the  general tax  rate for the  light industrial
        class  (Class  5)  was  $25.9979  per  $1,000  of  taxable
        property value, and for the  business class (Class  6) was
        $14.5581.   The rate for  the light  industrial class  was
        about 1.8 times  higher than that for the business  class.
        There  are only 129 properties  in Class  5, and the total
        assessed value of this  class accounts for  under one half
        of one  percent of  the total roll  value.   In 1996,  the
        Class 5  share of  the total tax  levy was just  under one
        percent.  Appendix B  contains a listing  of properties in
        this  class, and Appendix  C contains the legal definition
        of  Class 5  property that  is used  by the  BC Assessment
        Authority.


        Impacts   of  Blending   the  Tax  Rates   for  the  Light
        Industrial and Business Classes 

        Blending Class 5  and Class 6 tax  rates to a single  rate
        is essentially  the same as a shift in the tax burden from
        light  industrial properties  to business  properties,  of
        approximately $2.3 million.   This represents an  increase
        of about 18 cents (+1.2%)  to the business class tax rate.
        Correspondingly, the light  industrial tax  rate would  be
        decreased by $12.32 (-45%).  

        Chart  5   of  Appendix  D  compares   the  Class  6   tax
        distribution,  comparing separate versus blended tax rates
        for the business and light industrial classes.


           TABLE 6: Impacts of Blending Tax Rates for the Light
                    Industrial and the Business Class 

                                                                         Class 5                       Class 6
                                                          Light Industrial Class                Business Class
               SEPARATE RATES                                                   

               Est. 1997 General Tax Rate1                              $27.1270                      $14.7404
               Est. 1997 General Tax Levy                           $5.0 million                $185.8 million
                                                                                
               BLENDED RATE
                                                                                
               Est. 1997 Blended Tax Rate2                              $14.8093                      $14.9199
               Est. 1997 General Tax Levy                           $2.7 million                $188.0 million

               IMPACTS

               Change in Tax Rate                                        - 45.4%                        + 1.2%
               Tax Burden Shift                                   - $2.3 million                + $2.3 million

          1  Assuming a 4.5% increase  to the Class 5  and to
            the  Class 6 levy; Class 6  rate based upon land
            averaged assessments.

          2  Projected  blended   tax  rates  are   different
            because Class  6 rate  is based upon  three-year
            land averaged taxable values,  and Class 5  rate
            is based  on unaveraged  taxable values.   Rates
            are first blended  to calculate appropriate levy
            for each  class, then  Class 6 rate  is adjusted
            for averaged taxable values.

   Council has the  option of phasing the change from two separate
   tax  rates for  the light  industrial and  business class  to a
   blended  single  tax  rate for  the  two  classes, which  would
   moderate  the  year-over-year impact  of  this  change  on  the
   business class. 


   OPTION #3:  COMBINED DIFFERENTIAL  TAX INCREASE  & BLENDED  TAX
   RATES

   This option  combines Option  #1 and Option  #2, each  examined
   individually above.   While a differential tax increase  lowers
   the Class 6 tax  burden, blending business and light industrial
   tax rates increases  the Class 6 burden.  Together, the effects
   of  each  almost  negate  each  other.   The  decrease  to  the
   business  class tax  rate under  this option is  under 4 cents:
   $14.706  versus  $14.747  with  no intervention.    Chart  6 of
   Appendix D shows  that the base case tax distribution is almost
   identical to the one resulting from Option #3.


   OPTION #4: TAX CAPPING IN THE BUSINESS CLASS

   In 1994, the  Property Tax Task Force  reached a consensus that
   capping taxes  to a  determined percentage  increase limit  was
   appealing in the  short term,  in that this prevented  taxes on
   individual  properties from  undergoing dramatic  changes  from
   year  to year.  The  Task Force  also  recognized  that capping
   taxes masks  the real  changes in market  values that  underlie
   tax  increases   and  that  once  tax  capping  is  lifted  the
   adjustment  back  to  market  level  taxation  would  be   very
   difficult  and painful.  Given the  foregoing, the  Task  Force
   concluded  that: "Tax capping is not a tool that should be used
   by City Council  on an ongoing basis to mask tax increases that
   are due to jumps in actual market values."

   The Task Force recommended that a plan  to phase out the use of
   tax capping should  be part of the proposed consumption  study,
   leading to a new tax policy for the City. In response to  this,
   in  their report to  Council entitled   Study of Consumption of
   Tax-Supported  City  Services,    KPMG  Management   Consulting
   recommended that Council confirm and implement an approach  for
   phasing out  tax  capping.   A  phase-out program  has been  in
   place  for the business  class for the past  two years, with an
   increasing  cutoff  for the  cap  each  year, and  a decreasing
   maximum credit  value.  There  has been  no tax capping  in the
   residential class  since 1994,  and no capping  is modelled  or
   recommended for the residential class in this present report.

   Impacts of Tax Capping

   For 1997,  tax capping  has relatively  minor implications  for
   Class  6 properties.   A  small number of  properties receive a
   cap, and  the tax rate  for the class  is only slightly  higher
   than it would be with no capping.

   As opposed  to  the first  three options  discussed above,  the
   impacts of  tax  capping  are  assessed using  total  taxes  as
   opposed  to general  taxes only.   The  City of  Vancouver levy
   comprises only  half  of  the taxes  collected on  the City  of
   Vancouver property tax  bill.  Provincial school taxes  account
   for most of  the remainder, about 42%  of the total.  The other
   8% is  collected by  the City  of  Vancouver on  behalf of  the
   following  agencies:  Greater Vancouver  Hospital District,  BC
   Assessment Authority,  Municipal Finance Authority, GVRD and BC
   Transit.

   As  with the  other options,  the modelling for  tax capping is
   done  using three-year  land  averaged  values for  calculating
   1997 taxes.   All non-City of Vancouver property tax levies are
   assumed to increase by 3% over 1996.  

   The  capping mechanism  that is  being recommended  to  Council
   this   year  for   Class  6   is   based  on   increasing   the
   year-over-year bottom  line tax increase  hurdle rate from  20%
   to  25%, and  reducing the  maximum amount  of tax  credit from
   $7,500 to $5,000.   This would increase the Class 6 tax rate by
   approximately  two  cents  or  0.1%  to  $14.762  per  thousand
   dollars  of taxable  value.   The number of  properties in this
   class  that would  benefit  from capping  this year  (about 230
   properties)  is reduced  from the  approximately 760 properties
   that received a benefit in 1996.

   The  essential features  of the  proposed tax  capping  program
   are:

        i.  A  25% cap  on each  property s year-over-year  bottom
            line tax increase.
        ii.       A  $5,000  limit   on  the  tax   credit  to  an
                  individual property.

        iii.      Exclusion   from  capping   for   an  individual
                  property if:
             the property does  not qualify for  land assessment
              averaging in 1997 pursuant to By-law No. 7712, or

             the  property did  not have  an assessed  value for
              improvements in  both the  1996 and  1997  taxation
              years, or
             the property was exempt from real property taxation
              in 1996, or

             the 1997 assessed improvement value of the property
              has  increased  by  more  than  10% over  its  1996
              improvement  assessment   and  such  increase   is,              according to  the  records  of  the  BC  Assessment
              Authority, attributable to a change in the physical
              characteristics of the improvement.
        iv.       Capping  does not  apply to  sewer, water, local
                  improvement or other charges.

   This  tax  capping  option  is  consistent  with the  phase-out
   approach  recommended  by  KPMG   Management  Consulting,   and
   recommend that  this be  the last year  of tax  capping in  the
   business class  to  complete  the  phase-out program  that  was
   implemented three years ago.

   The following table shows  the effect of a  25% tax cap  on the
   tax  distribution for  the business class.   After capping, 650
   properties incur  a tax  increase of  over 20%,  but less  than
   half of those properties are eligible for a  tax cap.  Only six
   of the  193 properties with an  increase over  30% are eligible
   for  a cap.   Chart  7 of  Appendix D  shows  the Class  6 base
   distribution  of year-over-year  increases to  all taxes  (that
   is,   not  just  general   taxes).     Chart  8  compares  this
   distribution  to that produced  with the  application of  a 25%
   tax cap.

        TABLE 7. Class 6 Tax Distribution, All Property Taxes

    Overall Tax                 No      % of   25% Cap      % of
    Increase, 1997/1996    Capping    Sample         #    Sample
                                 #           Propertie
                         Propertie                   s
                                 s

    <= 0%                    1,827       24%     1,810       24%
    0% - 2%                  2,669       35%     2,645       35%
    2% - 5%                    989       13%     1,019       13%
    5% - 7%                    354        5%       354        5%

    7% - 10%                   425        6%       432        6%
    10% - 20%                  711        9%       710        9%
    20% - 30%                  315        4%       457        6%
    30% - 50%                  207        3%       123        1%
    > 50%                      123        1%        70        1%

                             7,620      100%     7,620      100%


   Tax Capping and Other Taxation Options

   The  tax  capping  analysis  shown  in  Option  #4  applies  to
   existing taxation  policy.  Neither a differential tax rate nor
   blended Class  5  and Class  6  tax  rates  are assumed.    Tax
   capping can  also be  applied in  conjunction with  any of  the
   first three taxation options presented in this report.  In  the
   case of a differential  tax increase, which lowers the Class  6
   tax rate,  fewer  properties  would receive  a cap  than  shown
   here.   In the case  of blending  the Class  5 and Class  6 tax
   rates,  the business  class  tax rate  is  increased,  and more
   properties would  receive  a  cap.   However,  because  neither
   Option #1,  Option #2 nor Option  #3 change the business  class
   tax  rate significantly, the  impacts of  capping combined with
   any of  these options will  not vary greatly  from those  shown
   here.


   SOCIAL IMPLICATIONS

   Property taxation  policy has a direct  impact on children  and
   families.    In order  to  make  owned and  rented  housing  as
   affordable as possible, Council  has attempted to  dampen large
   year-over-year tax increases, which  are driven by  real estate
   market conditions in the  city, since 1989.  Council action  to
   date has also capped the  growth of business taxes  with a view
   to   preserving    the   business/residential   character    of
   Vancouver s neighbourhoods.


   CONCLUSION

   This  report outlines  additional taxation  policy options  for
   Council consideration  before appropriate  1997  tax rates  are
   struck  to reflect a  balanced operating budget.  In continuing
   to phase out the tax cap in  the business class, a 25%  tax cap
   with a $5,000 tax credit  limit is recommended.  The impacts of
   a tax cap are  moderate, with under 300 properties receiving  a
   cap, and the tax rate is increased by only two cents.

   The impact  of a  differential  tax increase  is presented  for
   consideration,  applying  a 6.6%  increase  to the  residential
   class  levies, and  a  3.0%  increase to  non-residential class
   levies.   This results in  a 4.5% increase  to the  overall tax
   levy,  and  is  consistent  with  the  results  of  the  public
   consultation  process  Council  undertook  earlier  this  year.
   Such  a  differential  tax increase  adds  two  percent  to the
   general taxes  paid by each Class  1 property. The adoption  of
   Consideration  E submitted by  the Citizens   Advisory Group on
   Property Taxation would produce a similar result. 

   At  the request  of the  Citizens  Advisory  Group on  Property
   Taxation, the  option of blending the  tax rates for the  light
   industrial and business  classes to a  single rate is presented
   for  consideration.   This  change  would   result  in  a  $2.3
   million burden  shift onto Class  6, which would  be phased  in
   over a period of up to five years.


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