Executive Decides To Not Push Tax Appeal Losses Onto All Commercial Properties
It took 12 years of motions and a finally a pandemic before it was passed but Executive Committee took the first step many commercial property owners view as righting a major injustice in local municipal tax policy.
The major injustice for commercial property owners is they must pay a set percentage of the overall total property tax bill and when a commercial property owner successfully appeals an incorrect tax assessment the rest of the commercial property owners must make up the difference.
The issue came to the forefront during discussion surrounding establishing the final 2020 mill rate.
Each year Council must set the mill rate which when multiplied by the total provincial assessment percentage establishes the actual taxes charged. By utilizing the mill rate factor – something municipalities set – the City can shift the tax burden between different classes of property.
The total amount of the overall property taxes being sought for 2020 was 20.8 percent from commercial properties and from residential properties it is 78.1 percent.
The City has in the past charged a surcharge (as high as five percent) on all commercial properties to make up for appeal losses within the commercial property class.
In 2018 Council passed a motion to slowly adjust the mill rate factors to reduce the tax gap between commercial and residential properties. The move was made as part of a “tax fairness” policy where commercial properties having the same assessment as residential properties pay more in property taxes for a similarly assessed property.
Council may have been spaced out because of the Covid - 19 pandemic but it did not mean they did not have lively debate - MJ Independent photo
At the time former Councillor Don Mitchell raised the issue of tax fairness should also include other factors such as commercial property taxes are 100 percent income tax deductible but residential properties aren't. Councillor Mitchell also pointed out that there were other factors in a tax shift such as increasing utility fees and new garbage\recycling fees which shifted the tax burden.
Councillor Brian Swanson said he thought a report comparing property taxes between various centres was incorrect as each centre had different items paid for with taxes whereas others like Moose Jaw had fees for things other centres paid for out of taxes.
He also spoke about the different approach to franchise fees – a percentage amount charged to SaskPower and SaskEnergy bills – varied with Moose Jaw heavily reliant upon them.
“The garbage collection in some communities is paid on a mill rate and in Moose Jaw it’s paid on a surcharge…we are constantly reminded the City's reserve system up until the recent past offset 13 percent of municipal taxes. So the chart that shows Moose Jaw's mill rate as being in the middle of the pack I think there is a lot of things that have to be calculated in to get a realistic picture of what mill rates are in various cities.”
In a speach reminiscent of a decades old stuck 78 RPM record Councillor Brian Swanson spoke about it being unfair that commercial property owners be penalized for successful appeals.
“The second point I would like to make and that is how absurd it is to make other commercial properties pay for appeal losses,” he said.
Asked by Councillor Swanson what the overall commercial property tax rate increase this year would be finance director Brian Acker said it would be 3.3 percent.
“On one hand we are told the commercial mill rate factors is going to be reduced but when you add in the surcharges,” Councillor Swanson said adding “I don't agree with doing that. A lot of talk tonight was dealing with the pandemic but I think the truth be known Moose Jaw's commercial sector was under assault prior to this recent event. This is adding insult to injury.”
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In a recorded vote the recommendation to adjust the commercial mill rate to reflect commercial tax appeal losses fell 4 – 3 with Councillors Dawn Luhning, Crystal Froese, Scott McMann opposed and Mayor Fraser Tolmie and Councillors Heather Eby and Chris Warren in favour.
Where To Get The Funds?
Following the loss of the motion Executive Committee then turned to a more heated debate as to where to get the money to support their previous vote.
There were three suggestions put forward – the Accumulated Surplus Reserve, raise all property taxes an additional 1.14 percent or re-opening the Operating Budget and potentially cutting services.
Presently the Accumulated Surplus Reserve has a balance of $1.6 million with an expected further $182,000 in 2019 due to the lack of snow to remove.
After the motion was defeating Councillor Heather Eby asked the four councillors who voted to defeat the motion “how are we going to move forward with that?”
Councillor Brian Swanson said any funding shortfalls as a result of defeating the motion should be included in the report.
“I’m not getting the six figure salary to write the report and I would think the options should be outlined for the elected officials,” he said.
Acker said the report did contain an option.
“We are basically short $337,500 that would require an overall tax increase of 1.14 percent on top of the 2.03 percent that you have already approved,” Acker said.
Councillor Swanson however did not agree suggesting the needed funds be found by re-opening the Operating Budget and finding the funds.
“I would suggest another option, to reduce expenditures. Because the budget was established on assessment figures which were proven not to be correct…I would think an option is to reduce expenditures.”
Acker said the Accumulated Surplus was an option but it was an “option for one year” only.
“The reality is once you have lost this income you have lost it every year going forward. So yes this year you could allow your Accumulated Surplus to cover the $337,500 but the reality is it will be there next year, the next year and the year after,” Acker said.
Re-opening the Operating Budget was an option but not a good one as the City had already moved well into the year and it would be difficult to make adjustments, Acker said adding the two best options was a 1.14 percent general property tax increase or using the Accumulated Surplus realizing in future years the funds would have to be found.
Councillor Swanson said the easy way would be to raise property taxes or to do the hard thing and re-open the Operating Budget and cut expenditures.
“There are no easy solutions that’s right it is just who has to pay the price.”
Councillor Crystal Froese said she had supported the policy in the past but could not this year given the Covid – 19 pandemic.
“This is a situation where I am really quite fearful for the businesses and our commercial community in the city right now. Part of what I do for a living is I touch points with many businesses in this community and there are people who have been laid off already, there are businesses that are closing already and I just don’t think an added burden of this on top of everything they are going to go through is going to help,” Councillor Froese said.
She said she supported using the Accumulated Surplus this year but Moose Jaw had major problems with its high commercial property assessments.
“There has to be something out there as it isn’t something other cities have a problem with,” she said. “It isn’t fair for the commercial businesses to carry this no matter what way you kind of look at it.”
Councillor Dawn Luhning said it was a difficult issue.
“I don’t agree it should be taken from the rest of the commercial properties. I have never agreed with that. I think that is unfair to the others in that class,” Councillor Luhning said before making the motion to make up the $337,500 shortfall for 2020 from the Accumulated Surplus Reserve.
Councillor Eby said she did not agree with taking it out of the Accumulated Surplus because given the current uncertainty surrounding Covid – 19 the money may be needed elsewhere.
“This is not a creative solution and I am not in favour of it all,” Councillor Eby said.
Mayor Fraser Tolmie saw defeating the motion without identifying any other source of funding was folly.
“Defeating the decision before coming up with another option to be discussed in my opinion is the wrong way forward. It was just pointed out last year 115 (properties in tax arrears) were behind in their taxes. These are homes and now we are looking at 135 (properties in tax arrears) so to add that tax burden on concerns me,” Mayor Tolmie said. “I’m not very happy with the process moving forward. And then making a decision about our accumulated reserves when it is something we might need for the long haul.”
Councillor Swanson said given recent events the City should re-open the Operating Budget and find the money through cuts. He pointed to the 10 percent increases in taxes and franchise fees on property owners as unsustainable and the Covid – 19 pandemic just broke the bank.
Councillor Luhning re-entered the debate saying drawing from reserves on this issue was not the wrong way to go.
“I don’t think taking it out of the Accumulated Surplus is the worst thing we can do right now,” she said, adding “I think it is ridiculous we are arguing whether or not we are taking it out of our Accumulated Surplus.”
“We have got to be better leaders because the city is shutdown,” Councillor Luhning said.
“We have got to be better leaders because the city is shutdown”
Councillor Crystal Froese said she was in favour of using the Accumulated Surplus reserve given the major crisis many businesses are facing.
“Those funds are for a rainy day and in my estimation it is pouring outside,” Councillor Froese said.
Councillor Chris Warren said Operating Budget reductions would mean cuts to services.
“I just don’t know where we are going to find this without cuts to services,” Councillor Warren said. “I have said before the Accumulated Surplus is the result of us collecting more taxes than was needed.”
Councillor McMann said he has never supported charging other commercial property owners for assessment appeal losses.
“I obviously agree…we need to soon (look at expenditures) in the future…we need to look at what can come out of that budget,” Councillor McMann said.
In the end Executive Committee decided in a 6 – 1 vote to use the Accumulated Surplus to make up the $337,500 shortfall in commercial property assessment appeal losses.