POLICY REPORT
FINANCE

Date: April 25, 2000
Author/Local: G. Merchant/7250
RTS No.01421

CC File No. 1551

CS&B: May 4, 2000

TO:	Standing Committee on City Services and Budgets
FROM:	General Manager of Corporate Services / Director of Finance
SUBJECT:	2000 Property Tax Options

CONSIDERATION

THAT Council approve a shift in the tax burden equal to approximately 1% of the 2000 general purposes tax levy (approximately $3.69 million), proportionately from Class 2 (utilities), Class 4 (major industrial), Class 5 (light industrial) and Class 6 (business/other) to Class 1 (residential) properties

DIRECTOR OF FINANCE COMMENTS

Consideration A deals with the issue of shifting the taxation burden from the non-residential classes to the residential class. While there is no policy governing the eventual split in the tax burden, Council has made decisions on this shift on an annual basis, based on recommendations from the Citizen’s Advisory Group on Property Taxation. It should be noted that, prior to the shift, the 2000 Class 1 to Class 6 ratio is estimated at 44.8% to 51.5% (including Solid Waste and Sewer user fees) representing a shift of 5.5% from the ratio in 1993.

COUNCIL POLICY

There is no standing policy on the issue of shifts to the relative shares of the taxation burden among property classes. Since 1994, Council has decided in each year whether to shift the tax burden among property classes, in the context of the other taxation issues at hand.

PURPOSE

The purpose of this report is to discuss various taxation policy options relevant to the 2000 taxation year.

BACKGROUND

1999 taxes for residential and business properties were based on three-year land averaged values. The overall tax levy was increased by 3.4%, evenly applied to all classes. Council did not shift the tax burden among property classes in 1999.

In 2000, taxable values in both the residential and business class have been relatively stable, with the great majority of properties in these classes having changes to taxable value of under five percent. Consistent with the past few years, land averaged values are to be used in the calculation of taxable value, for the residential and business classes. Council has approved the introduction of the Sewer Utility, the blending of tax rates for properties in class 5 and 6, as well as a 2.75% tax increase over 1999.

TAX IMPACTS: BASE CASE

The analyses presented here are based on samples of Class 1 and Class 6 properties, screened to eliminate those that are not eligible for land assessment averaging. It is important to note that the tax impacts of classes 2, 4, 5, 8 and 9 have not been modelled. It is expected that the impact on classes 2, 4 and 5 would be similar to the impact on class 6, and the impact on classes 8 and 9 would be similar to the impact on class 1.

The base case represents the impact of the following actions approved by council:

… Three-year land averaging for the residential and business classes
… Removal of $12.9 million in sewer costs from the tax levy
… A 2.75% overall increase to the tax levy.

Appendices B and C show the tax distributions for Class 1 and Class 6. With no shift in tax burden, the average change in taxes for the properties sampled is -2.2% for the residential class, and 2.3% for the business class. The difference in the change in taxes between the classes results from the introduction of the Sewer Utility and the blending of tax rates for classes 5 and 6.

TAX IMPACTS: SHIFT RELATIVE SHARE OF TAX LEVY AMONG CLASSES

The rationale for the one percent burden shift to the residential class is found in the 1995 report by the KPMG Consulting Group, Consumption of Tax-Supported City Services. The authors of this report recommend developing a rate-of-adjustment policy which allows for a shift in the tax burden to the residential class.

The members of the Citizens’ Advisory Group on Property Taxation support this policy, as set out in the April 2000 letter from the Chair (Appendix F).

To date, Council has not adopted any policy on a target for the distribution of the tax levy by property class, however, the issue has been presented to Council on an annual basis with shifts being approved in four of the last six years.

From 1983 to 1994, Council maintained the relative 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 four of the years since 1994, Council has altered the relative shares of the tax levy, as shown in Table 1.

Table 1. Relative Share of Tax Levy, Class 1 & Class 6

	% TAX LEVY	% TAX LEVY	TAX RATIO	FACTORS
1990	39.4%	54.9%	4.1	-
1991	39.4%	55.3%	4.2	-
1992	39.4%	55.4%	4.7	-
1993	39.3%	55.8%	4.5	-
1994	40.0%	54.8%	5.3	Shift $3.0 million to Class 1
1995	41.4%	53.4%	5.5	Shift $3.0 million to Class 1
1996	41.9%	53.2%	5.5	-
1997	42.9%	52.6%	5.2	Shift $2.9 million to Class 1
1998	43.8%	52.2%	5.4	Implement Solid Waste Utility
1999	44.2%	52.1%	5.1	-
2000 - No shift	44.8%	51.5%	5.2	Implement Sewer Utility
2000 - 1% shift	45.8%	50.7%	5.0

NOTES TO TABLE 1

1. Note that the tax rate ratio is affected by interventions such as land averaging and tax capping.

2. 1998 figures are significantly affected by the implementation of the solid waste utility in this year. Part of the new utility fee was for a recycling charge, which represented a $3.8 million increase in total paid by the residential class.
3. 2000 figures are affected by the implementation of the sewer utility. In 2000, class 1 (residential) will have $8.6 million in sewer costs levied through a user fee, while class 6 (non-residential) will have $4.1 million in sewer costs levied through a user fee.
4. The other property classes account for the remaining 4% - 6% of the tax levy (utilities, light industrial, major industrial, recreational/seasonal and farm).

The charts in Appendices D and E compare the tax distributions under the base case, versus a $3.69 million shift in the tax burden to the residential class. The impacts of a shift are summarised in Tables 2 and 3, for the business and residential classes.

Table 2. Impacts of One Percent Shift in Levy, Class 1 Residential

	Base Case	1% Shift	$ Change	% Change
Tax Rate (per 1,000)	$2.924	$2.995	$0.07	2.4%
Tax Levy	$154.2 m	$157.9 m	$3.7 m	2.4%
Average 2000/1999 change in taxes	-2.2%	0.1%	-	-
Average 2000/1999 change in taxes	-$25	$2	$27	-
# properties with +10% increase

Table 3. Impacts of One Percent Shift in Levy, Class 6 Business

NOTES FOR TABLES 2 & 3
1. Class 1 and Class 6 based upon three-year land averaged values, and a 2.75% tax increase is incorporated.

The other non-residential property classes (light industrial, major industrial and utilities) will also experience a 1.7% decrease in their levy and tax rates as a result of a burden shift.

CONCLUSION

The Director of Finance submits to Council for consideration, a one percent ($3.69 million) shift of the tax burden from the non-residential classes to the residential class.

APPENDIX A

SUMMARY OF MAJOR PROPERTY TAXATION POLICY DECISIONS SINCE 1989
CITY OF VANCOUVER

Link to Appendix B

Link to Appendix C

Link to Appendix D

Link to Appendix E

Link to Appendix F

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