POLICY REPORT

FINANCE

Date: November 25, 1997

CC File No. 1552

TO: Vancouver City Council

FROM: Director of Finance

SUBJECT: 1998 Property Tax Options

RECOMMENDATIONS

A.THAT, pursuant to legislation requirements, the City Clerk be instructed to notify the Assessment Commissioner before January 1, 1998 that the City is considering three-year land averaging and/or land phasing as property tax calculation options for 1998. It should be noted that this notice of intent is revocable should Council, at a later date, decide not to proceed with either of these taxation options.

B.THAT the Director of Finance be instructed to report back in the early new year on the projected taxation impacts of three-year land averaging and land phasing, based on the assessment values provided by the BC Assessment Authority in the 1998 Consolidated Roll.

C.THAT the Area Assessor for Vancouver be invited to address Council in the early new year on the assessment trends reflected in the 1998 Consolidated Roll.

MANAGER’S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of recommendations A, B and C.

COUNCIL POLICY

Council policy is to keep property taxes affordable by following a practice of holding year-over-year tax increases at inflationary levels.

PURPOSE

The report recommends that the Assessment Commissioner be notified that Council is considering the use of land averaging/phasing as potential taxation options for 1998. It should be noted, however, that this notification does not commit Council to the implementation of either option. Detailed statistical modeling of the impacts of various taxation options will be reported to Council in the new year.

BACKGROUND

Interventions to the Market-Based Taxation System

Since 1989, Vancouver City Council has taken proactive measures to address the shifts in taxation burden within property classes that have resulted from uneven year-over-year assessment increases. These measures have in various years taken the form of a cap on each property's year-over-year increase in taxable land value (1989 only), a cap on each property's year-over-year tax increase (referred to as "tax capping"), and the use of a three-year average of taxable land value in property tax calculations ("averaging").

All interventions to the market-based taxation system are revenue-neutral within each property class. This means that while the taxes paid by an individual property may differ depending upon whether a mitigation measure is used, the overall levy paid by a class of property remains the same, whether or not that mitigation measure is used. When an individual property’s tax is lowered in a given year due to an intervention to the market-based system, there are other properties in the same class for which taxes will increase as a result.

Limitation programs have been applied to the residential and/or business class in every taxation year since 1989. Three-year land averaging was approved by the provincial government as a taxation option in 1992 for use in subsequent taxation years. Council has approved the use of three-year land value averaging as a taxation option for residential and business properties in each year since 1993. Statistical modeling has shown that land phasing has not been as effective in lowering the share of properties that experience extreme tax increases as averaging has been. Although there are strong arguments for applying land value averaging on an ongoing basis, provincial legislation requires Council to approveaveraging on a year-by-year basis, and notify the Assessment Commissioner annually of their intent to use averaging.

Taxation Burden Distribution Among Property Classes

Until 1994, it was Council policy to maintain the taxation burden distribution between classes at the proportions which existed in 1983, allowing for adjustments to these ratios resulting only from new construction and from zoning changes. The business class paid approximately 56% of the City’s tax levy, and the residential class 39%, with the other property classes accounting for the remaining 5%.

In 1994, Council approved a $3 million shift of taxation burden from the business class onto the residential class. In 1995, Council approved an additional $3 million shift, proportionately from the business, utilities, light industrial and major industrial classes, onto the residential class. In 1997, an additional $2.9 million was shifted to the residential class as the result of a differential tax increase to the various property classes. In this year, the business class paid 53% of the tax burden, the residential class 43%, and the other classes the remaining 5%.

In 1992, Council folded the residential, recreational and farm classes together in order to establish a common tax rate for billing purposes. This action produced a very slight shift of tax burden onto the residential class from the recreational and farm classes. In 1997, at the request of the Citizens’ Advisory Group on Property Taxation, Council considered blending the tax rates of the light industrial and business classes. Council opted not to do so, consistent with the advice of the Director of Finance to defer this until the impacts of the proposed sewer utility and the proposed TSS/BOD charges are known, and until some of the other interventions to the tax system, such as tax capping, have been eliminated.

The Citizens’ Advisory Group on Property Taxation and the Property Tax Task Force

The Property Tax Task Force was created by Council in 1993, with the mandate of reviewing the property tax system and recommending means of improving the year-over-year stability and predictability of property taxes. The Task Force submitted its report, which contained fourteen recommended actions, to City Council in April 1994. The Director of Finance submitted a progress report on this work to City Council in June 1994. In March 1995, the results of the Study of Consumption of Tax-Supported Services, work recommended by the Property Tax Task Force and conducted by the KPMG Consulting Group, were reported to Council.

The Citizens’ Advisory Group on Property Taxation, formed in early 1996, is currently continuing work begun by the Property Tax Task Force. This group equally represents business and residential concerns, and comments to Council on an ongoing basis regarding property tax matters that are before Council for consideration.

DISCUSSION

No tax impact modeling is presented to Council at this time, as the 1998 preview assessment roll (the only information currently available) does not fully reflect the important changes in taxable value over last year. Once the consolidated roll is available, staff will report back on the impacts the various 1998 taxation options. Staff submits the current report to Council at this time primarily to receive direction to notify the Assessment Commissioner of Council’s intent to use land averaging and/or land phasing in the coming year.

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(c) 1997 City of Vancouver