POLICY REPORT

FINANCE

Date: March 27, 1998

Author/Local: L. Swanson 7768

CC File No. 1551

TO:	Vancouver City Council
FROM:	Director of Finance
SUBJECT:	Tax Installment Prepayment Plan (T.I.P.P.)

RECOMMENDATION

A.THAT a voluntary property tax installment prepayment plan (T.I.P.P.) be approved with an implementation date of August 1, 1998.

B.THAT one clerical position be established to handle the administrative and customer service process, at an approximate annual cost of $39,000. This position will be initially recruited for a two year term subject to review for regular status based on ongoing workloads for T.I.P.P.

C.THAT on-going costs of $3,000 for additional banking and postage costs, one-time costs of $55,100 for computer programming and $8,600 for equipment be approved in order to implement this program. 1998 funding for these and staffing costs will be from interest earnings on higher cash balances, interest costs saved on tax prepayments, and from savings in the departmental budget due to an existing staff vacancy.

D.THAT the Director of Legal Services be instructed to submit a by-law to Council, before April 30 of this year, which incorporates the terms and conditions of this plan as outlined in Appendix A.

GENERAL MANAGER’S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of the foregoing.

COUNCIL POLICY

Section 412 of the Vancouver Charter permits acceptance of monies to be applied at a future date to the payment of real property taxes. A by-law is required which may specify terms and conditions including the rate of interest to be credited on the payments. Section 416 of the Charter enables payment of real-property taxes by monthly, quarterly, or twice yearly installments. There are currently two by-laws in effect under these provisions:

1. Bylaw No. 4805 - A By-law to Provide for the Imposition and Collection of a Portion of Real-Property Tax in Advance of a Rating By-law (commonly known as the Advance Tax By-law) - which authorizes the advance billing of property tax and is mandatory for taxpayers. This by-law, which is enabled by Section 416 of the Charter, would not be affected by the program proposed in this report.

2.Bylaw 4804 - A By-law Authorizing the Acceptance of Monies to be Applied at a Future Date in Payment of Taxes (commonly known as the Tax Prepayment By-law) - also provides for the payment of interest on prepayments. This by-law is enabled by Section 412 of the Charter. Once a new by-law is enacted which authorizes the program proposed in this report, this by-law would be repealed.

PURPOSE

This report seeks Council approval on the introduction of a voluntary monthly installment plan for the prepayment of property taxes (T.I.P.P.) commencing in August 1998.

BACKGROUND

T.I.P.P. is defined as a monthly tax installment prepayment plan, by which a taxpayer voluntarily makes consecutive monthly payments for taxes prior to the due dates. Payments will be made through pre-authorized charges to the taxpayer's bank account.

Over the years, the City has received requests from taxpayers for a monthly installment plan as a convenient way to pay their property taxes. Currently, a minority of taxpayers give post-dated cheques to the Property Tax Office as a method of paying equal installments throughout the year rather than two lump sums. The balance of taxpayers use other payment methods such as paying at a bank, mail or in person at the Property Tax Office.

DISCUSSION

In preparation for this program, a written survey of thirteen municipalities across Western Canada, and personal interviews with two municipalities, were conducted to examine program details, required processes and procedures. The results of this research highlight that the taxpayer was the primary initiator of plan implementation. It also showed that T. I. P. P. has been successful in other cities during the average 6 year time period in use.

For the taxpayer, primary benefits resulting from a monthly installment plan include:

·Cash Flow Assistance: T.I.P.P. provides a facility to assist in personal budgeting by offering a regular payment plan at no charge.

·Another Easy to Use Payment Option: Enrollment will simply be completion of an application form with bank information.

·Secure Payment Option: As this plan involves automatic payment processing by withdrawing fixed amounts from the taxpayer's bank account on certain dates, the taxpayer is guaranteed of the payment being made on time on their behalf.

From the City's perspective, there are also benefits:

·Improved Cash Flow Forecasting: Advance knowledge of cash inflows on specific dates will facilitate effective management of daily and long-term cash positions.

·Natural Hedge: Reducing monies received during the current two peak tax receipt times to monthly installments throughout the year provides a natural hedge against interest rate fluctuations, and facilitates matching cash inflows to cash outflows throughout the year.

·Workload Management: Reducing cash receipts during February and July will result in more balanced workloads for Treasury and Property Tax staff.

COMMUNICATION AND CUSTOMER SERVICE PROCESS

It is intended to communicate the particulars of this program in the "City News" newsletter being mailed to property owners along with their tax bills in May, 1998. Once T. I. P. P. is established, further communications will be used to actively promote the program.

To enroll in the program, a taxpayer will complete an application form with key banking information and forward it to the Property Tax Office. Based on this information, the 10 monthly installments will be calculated based on the previous year's property taxes less the Home Owner Grant, or will be a lesser amount mutually agreed upon by both parties. Staff will review and up-date the information, then forward it to the bank each month for processing. The basic eligibility requirement is to be a Vancouver property owner with an up-to-date tax account. Terminations and changes can be done at any time. Monthly installments collected from August 1 to February 1 will be applied to the Advance Billingdue in February. The taxpayer must pay any balance owing on the Advance Billing date to avoid penalty. If a credit balance remains on this date, this amount, as well as the monthly installments collected March 1 to May 1, will be applied on the final billing date in July. By June 1 of each year, the taxpayer will receive their main property tax bill statement showing the net prepayments made to date, and the balance of taxes owing. The taxpayer will then be responsible to make the final property tax payment in July and apply for their Home Owner Grant.

Appendix A includes a summary of the proposed terms and conditions of T.I.P.P.

INTEREST ON PREPAYMENTS

Staff reviewed the issue of offering interest on these prepayments of taxes. At present, the City offers prepayment interest at a rate of 3%, for payments made during a defined period ahead of the regular billing dates. However, this interest rate is too high for current market conditions, and staff would otherwise be recommending that this rate be reduced in line with interest paid by banks on savings accounts, which is currently about 0.5%.

The practice of prepayment interest for other municipalities offering this T.I.P.P. program was reviewed. Of the thirteen municipalities surveyed, 7 give prepayment interest on the installments received. The remaining 6 cities do not give interest, stating that the program is offered as a convenience to their taxpayers to assist them in paying their taxes, and that interest rate incentives are not required.

Further, there are the above-noted costs to the City in providing this additional payment option. In order to be able to fund these costs, without impacting the Operating Budget, staff are recommending that no interest be given on installment payments. If a customer wishes to earn interest on their monthly installments, staff will direct them to their bank for that facility.

FINANCIAL AND PERSONNEL IMPLICATIONS

There will be a cost to the City of having this payment option available to taxpayers. In order to administer the process - completing the application forms with customers, transferring the banking information, and dealing with customer enquiries - one full-time clerical position is required. Recruitment for this position will be for a temporary two year term, to be evaluated for regular status after two years, based on participation in T.I.P.P., and the workload resulting from plan enrollment numbers. There will also be a one time cost of $55,100 for computer programming for the mainframe billing system, a one time cost of $8,600 for equipment, and on-going additional banking and postage costs of $3,000.

Total costs for 1998 will amount to $92,700, and on-going costs amounting to $42,000. The 1998 costs will be funded from interest earnings from higher cash balances, the elimination of interest paid on tax prepayments, and savings in the departmental budget due to an existing staff vacancy.

CONCLUSION

It is anticipated that a break-even enrollment of 3,100 or 2.00% will be achieved resulting in no net cost to the City during the collection period for 1999 taxes. In addition, there are clear advantages to the City of improved cash management, interest rate risk, and workload management.

Taxpayers have requested that the City implement such a program, given the advantages of budgeting, ease of use, and a secure payment facility.

T.I.P.P. is beneficial to both the taxpayer and the City.

* * * * *

Appendix A

TAX INSTALLMENT PREPAYMENT PLAN - T.I.P.P.

T.I.P.P. is a monthly tax installment prepayment plan, by which taxpayers voluntarily make consecutive monthly payments for taxes prior to tax due dates. Payments will be made through pre-authorized charges to the taxpayer's bank account.

SUMMARY OF PROPOSED TERMS AND CONDITIONS:

1. Eligibility - Taxpayers can join T.I.P.P. if the taxpayer:

·Tax account is paid in full;

·Has chequing privileges at a financial institution in Canada;

·Property taxes are not paid through a mortgage company (P. I. T.);

·Property will not be sold within the year following application date.

2. Monthly Installments - The monthly installment amount is based on the previous year’s gross taxes less the Home Owner Grant (if eligible) divided by 10 monthly installments, or is a lesser dollar amount mutually agreed upon by both parties. The 10 payments on the monthly plan will be processed beginning August 1 and ending May 1. Enrollment in T.I.P.P. will be completed after August 1 provided past monthly installments for that year are paid at time of application. To avoid penalty, the owner must pay any balance owing on the Advance Billing date, as well as make the final and 11^th payment by the July due date.

3. Home Owner Grant - The taxpayer must apply for the Home Owner Grant (if eligible) by the July due date to avoid penalty.

4. When a Property is Sold - If a property is sold or title transferred, it is the taxpayer's responsibility to notify the City of Vancouver, Property Tax Office. This written notification to cancel must done at least 30 days in advance of the next payment.

5. To Change or Cancel this Agreement - If a taxpayer changes bank accounts or chooses to cancel the T.I.P.P. agreement, it is the taxpayer's responsibility to provide written notification to the Property Tax Office at least 30 days in advance of the next payment.

6. Dishonored Payments - The City of Vancouver reserves the right to cancel T. I. P.P. if two consecutive payments are not honored by the taxpayer's financial institution.

7. Applicable Payments - T.I.P.P. only applies to amounts billed and collected through the Property Tax Office.

(c) 1998 City of Vancouver