Expert insights: How we can reform Calgary’s property tax system
Our property tax system needs long-term, structural change to rebuild resiliency in Calgary’s business community. To explore our options, we sat down (virtually) in February with two leading property tax experts, Brock Ryan and Bruce Turner.
The following interview has been edited for brevity and clarity.
What are the pros and cons of Calgary’s current property tax system?
Brock: Our system has two main benefits. First, properties are re-assessed every year, which allows for quick reaction to changes in market value. Second, it’s based on value (sometimes called an ad valorem system). Basically, it operates on the assumption that those who own properties with higher real estate market value should be able to contribute more compared to those who own property with a market value that is declining.
There are also two main drawbacks. The first is that property taxes can be influenced by political decisions. Elected representatives have an incentive to tax business at a higher rate, while subsidizing residential taxpayers who vote at the ballot box. This results in different tax rates. In Calgary, there are residential, non-residential (business), and farmland tax rates. Currently the non-residential combined rate is about 2.73 times higher than the residential rate for every thousand dollars of assessed value.
The other drawback of our current system is how complicated it is. It can be frustrating working through several layers of red tape including legislative rules, internal policies, duplicate authorizations, multiple due dates and time-consuming procedures. If you have a complaint, it is funneled through a complex process that is supposed to be at arms-length from the city, but it isn’t always viewed that way.
Bruce: In addition to what Brock has pointed out, I’d focus on how the system was designed to focus specifically on Calgary’s needs. This is both a benefit and a drawback.
On one hand, the property tax system was originally designed to improve the community and respond to local needs. That is a positive, as it is usually beneficial for decisions about a community to be made locally.
On the other hand, municipal governments have been required to provide increased services over the past 30 years, particularly compared to the federal and provincial governments. Depending on how you count, Calgary is responsible for about 61 different services for its residents. I question whether the current system allows Calgary to generate enough revenue to pay for those services moving forward.
That brings me to another drawback. While the current system can quickly respond to market value changes, its design also leads to structural issues around how property values are assessed, the impacts of sudden increases in downtown vacancy, and resulting gap within the non-residential tax base and the ability of some businesses to pay when they see large year-over-year increases.
What tools does the city have at its disposal to change the current system to allow for more transparency for all Calgarians?
Brock: In 2018, the city stopped providing additional supporting information around how it calculates property assessments. It should go back to providing that information, giving residents and businesses more evidence around how it determines assessed values. This would help increase transparency and trust in the process.
I also believe that the Assessment Business Unit (ABU) and the Assessment Review Board (ARB), which facilitate the assessment process for the City and manage and respond to reviews, should be subject to an independent review that includes all relevant stakeholders every three years. The ABU and ARB have shown leadership in this area by participating in council-mandated reviews, but this process should be more robust and consistent.
Currently, when ABU and ARB pursue positions and decisions that harm the viability of small business, often against best evidence, the legal system is the only recourse. If there was a regular mandate to analyze challenges – and to find creative ideas to fix problems – we could vastly improve the effectiveness and transparency of the assessment and taxation system.
Bruce: To me, transparency and communication are critical because they relate to trust in the system overall. Improving transparency can happen in a few ways. There needs to be an education component – businesses need to understand the property tax process, and how the system relates to economic cycles and their own finances. The city and individual business owners share this responsibility. Also, in addition to providing evidence for how it calculates property tax assessments, the city can also provide more information about emerging risks in property assessment and tax rate forecasting.
How could the city change the current system to increase certainty and stability for Calgary businesses?
Brock: The best tool the city has is to create the right climate, ideally through thoughtful spending reductions. Tax rates should stay flat and spending should fall, which would give businesses a break.
Instead, the City of Calgary became so reliant upon commercial taxation that when the values of downtown office properties plummeted over the last few years, causing a decrease in property tax revenue for the City, there was a tidal wave of property taxation to the suburbs. This situation became so dire that council made the decision to tinker with the current system and place a cap on property tax increases for businesses (the Phased Tax Program, or PTP). But it backfired, resulting in massive property tax cuts for businesses that were prospering and relatively higher property taxes for some properties that were in decline.
Again, this entire situation – where the business community pays for considerably more than the services they consume, where spending reflects a high level of service delivery built on unequal business and residential property tax collection, and where temporary solutions are routinely needed like the PTP – can be avoided through thoughtful spending reductions.
Bruce: The City potentially has many tools at its disposal. Spending reductions are certainly one of them, and a lot of reductions did occur across Canada in the 1990s. Spending cuts tend to be painful for taxing authorities and residents who see decreased services. Whatever the city opts to do, the right tool to increase certainty and stability for Calgary businesses can only be chosen through understanding the different trade-offs. For example, if we broaden the tax base through development, this can lead to a trade-off between equity and efficiency which can be a problem. Capping taxes is another option, but that may also leads furthering inequities. Reversing caps almost certainly causes more pain than the initially perceived benefits.
Council and administration should also be wary of importing policy solutions from other jurisdictions – context matters and neglecting the context in which the policy was developed (like the size and scope of the tax base, and level of service provision that property taxes provide for) may lead to unintended consequences.
Lastly, as you have talked about at the Calgary Chamber, Calgary needs to consider how it generates revenue. This would require a larger conversation about the provincial-municipal relationship, so it is far from an immediate solution. Traditionally, property tax has been described as a tax on wealth. However, the nature of wealth in the 21st century has changed. Today, property tax does often not reflect a taxation of those with the most wealth. Two examples: in today’s housing market, consider whether younger residential purchasers with a 90% mortgage consider property tax as a tax on their wealth, or a small business tenant’s wealth when they are responsible for property tax on their landlord’s development property.
We talk about the property tax system as being a challenge on both the revenue and spending side. What are the key opportunities for reducing spending?
Brock: We need a moment of truth. Calgary has a history of high spending and residents who desire services. We have an opportunity that is beginning to materialize, as Calgarians become more aware now that service levels are tied to taxes. We need to capitalize on this moment by continuing to educate people that increases in service levels should result in increased property taxation for residents and not only businesses.
Bruce: As I mentioned earlier, Calgary has already engaged in considerable spending cuts similar to much of Canada in the 1990s. It will be harder to continue that now – it’s difficult to cut services during an economic downturn. Even still, I’d argue that the real opportunity lies, much like what Brock has said, in mastering the communications challenge. If Calgary does want spending cuts, then it will need to communicate how increasing costs to residents leads to decreasing services. The context for that communication should include both immediate and longer-term solutions to the basic question of ‘who pays for and who benefits from certain services.
Are other regions in the country using systems that better address the current challenges we are facing?
Brock: Some municipalities have used sub-classifications for non-residential property taxation with mixed results. This could allow for us to fine-tune the tax rates by property use, possibly by location (like 17th Avenue, Kensington, or Inglewood), or by industry.
Bruce: The similarity of issues across different jurisdictions in Canada is remarkable, and so I am inclined to say that few regions avoid the current challenges that Calgary is facing. I think what is truly needed is more discussions between the federal, provincial and municipal governments on the property tax system and municipal finances broadly. There should be an emphasis on making the system more responsive to today’s changing needs.
About Brock Ryan and Altus Group
Brock Ryan is a Senior Director focusing on property taxation as a member of Altus Group’s Expert Services business unit. He has spent the past 20+ years providing business advisory services to owners and managers of real estate across Canada; including having lived and worked in Vancouver, Edmonton, Toronto and Calgary. His experiences in Western Canada have largely shaped his views and have included sharing his expertise with various business organizations, industry members and the assessment community throughout Canada. Originally from Nelson, British Columbia, Brock completed his post-secondary education at the University of British Columbia in Economics and Art History. Brock, his wife Jessica and their two children are proud to call Calgary home.
Altus Group is the largest provider of commercial property tax services in Calgary and across Canada. With 26 Calgary-based practitioners with over 270 years of specialized property tax expertise, Altus Group leverages its best-in-class access to real estate and assessment data to effectively manage and minimize its clients’ property taxation. Learn more here.
About Bruce Turner
As President of Heuristic Consulting Associates, Bruce Turner provides management consulting and real property advisory services. Bruce’s consulting assignments range from working with an international team in the Kingdom of Cambodia to assisting Canadian organizations in developing business strategy, conducting independent reviews and audits, and clarifying policy objectives & organizational design. Prior to consulting, Bruce enjoyed a career with BC Assessment Authority in executive management, policy and technical roles. Bruce’s volunteer interests include education, land-based economic development and environmental leadership, which have led him to develop course content with the University of British Columbia (UBC) and author several papers on topics including the future of work, complex property valuation and the changing role of the assessment community.