FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
ASSOCIATION OF MUNICIPAL CLERKS AND TREASURERS OF ONTARIO
BLOOR BATHURST-MADISON BUSINESS IMPROVEMENT AREA
BOARD OF TRADE OF METROPOLITAN TORONTO
ASSESSMENT REFORM WORKING GROUP
LAWRENCE PARK RATEPAYERS' ASSOCIATION
REGIONAL MUNICIPALITY OF HAMILTON-WENTWORTH
FAIR RENTAL POLICY ORGANIZATION OF ONTARIO
BATHURST-DAVENPORT COMMUNITY ASSOCIATION
CONTENTS
Tuesday 8 April 1997
Fair Municipal Finance Act, 1997, Bill 106, Mr Eves / Loi de 1997 sur le financement équitable des municipalités, Projet de loi 106, M. Eves
Canadian Federation of Independent Business
Ms Judith Andrew
Mr Ted Mallett
Association of Municipal Clerks and Treasurers of Ontario
Mr Ron Shaw
Mr Bob Heil
Bloor Bathurst-Madison Business Improvement Area
Mr David Vallance
Mr Norm Gurr
Board of Trade of Metropolitan Toronto
Mr John Bech-Hansen
Assessment Reform Working Group
Mr Michael Walker
Mr George Milbrandt
Ms Gay Bell
Mr Al Sablatnig
Mr Peter Milligan
Lawrence Park Ratepayers' Association
Mr George Teichman
Ms Fiona Nelson
Regional Municipality of Hamilton-Wentworth
Mr Marvin Caplan
Westin Harbour Castle
Mr Minaz Abji
Fair Rental Policy Organization of Ontario
Mr Philip Dewan
Bathurst-Davenport Community Association
Mr Richard Cassel
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
Ms IsabelBassett (St Andrew-St Patrick PC)
Mr JimBrown (Scarborough West / -Ouest PC)
Mr TedChudleigh (Halton North / -Nord PC)
Mr JosephCordiano (Lawrence L)
Mr Douglas B. Ford (Etobicoke-Humber PC)
Mr TimHudak (Niagara South / -Sud PC)
Mr MonteKwinter (Wilson Heights L)
Mr TonyMartin (Sault Ste Marie ND)
Mr GerryMartiniuk (Cambridge PC)
Mr GerryPhillips (Scarborough-Agincourt L)
Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. DouglasRollins (Quinte PC)
Mr JosephSpina (Brampton North / -Nord PC)
Mr WayneWettlaufer (Kitchener PC)
Substitutions / Membres remplaçants:
Mr GaryFox (Prince Edward-Lennox-South Hastings /
Prince Edward-Lennox-Hastings-Sud PC)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 1002 in room 151.
FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
Consideration of Bill 106, An Act respecting the financing of local government / Projet de loi 106, Loi concernant le financement des administrations locales.
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair (Mr Ted Chudleigh): We'll call the meeting to order. We have the pleasure of welcoming the Canadian Federation of Independent Business, Judith Andrew. Welcome to the committee. We have 20 minutes. If you would like to make a presentation, we'll fill any remaining time with questions. If you would introduce your associate for Hansard, thank you very much.
Ms Judith Andrew: I'm Judith Andrew, executive director of provincial policy with the Canadian Federation of Independent Business. Joining me today is my colleague Ted Mallett, who is CFIB's director of research. We appreciate the opportunity to appear before the standing committee on finance and economic affairs on the subject matter of Bill 106 on property tax.
You have before you a brief that we've prepared that draws heavily from considerable research that CFIB has done, basically since 1995, on the subject of property tax. I'd like to draw your attention initially to the first page, where figure 1 shows rather starkly that Ontario is the world champion of property taxation. When you do this study and look at total property and wealth taxes, Canada's ranking in this is, we levy roughly 4% of gross domestic product as of 1994, the most recent data. This is well above the level found in most other countries. On both a per capita and percentage of GDP basis, Ontario, within Canada, imposes the heaviest property tax load across the country. Local governments collected roughly $1,400 for every person in the province in 1994, or about 5% of GDP. I think it's worth noting that this tax load has been increasing fast, and that is illustrated in table 1 of the brief.
A point that Anne Golden's task force on the GTA found was that the discriminatory tax treatment of the business sector is certainly very well documented. Our own study -- and you can see the results on page 3, figure 2 -- showed that commercial and industrial property owners across Ontario paid double the rate of tax compared with residential properties. Although the conditions in Metro Toronto receive the highest public attention, the same problems exist for businesses right across the province. In Metro the issue is somewhat more acute, with businesses paying triple the taxes that residents pay for properties of the same value, and figure 2 illustrates, for the various regions and cities of the province, just how much businesses are paying relative to residents for properties of $100,000 value.
My colleague will get into the details of Bill 106 and how it impinges on this inequitable tax situation for business, but I'd just like to review our conclusions with you. They're found on page 9.
The bill does not actually work towards correcting the huge tax distortions facing Ontario's business community. This approach in Bill 106 would actually lock in the distortions of the current system.
We feel that it is highly likely that the measures proposed by the government in Bill 106 would lead to an increase in the overall level of property taxation on business, a very serious matter, since businesses are already shouldering far more than their fair share.
Business occupancy taxes, in our view, are not being eliminated but merely blended into the business realty tax system. Small firms will be hit harder by these changes.
Finally, we think local government accountability is at stake. Artificial tax rate differentials actually obscure the true cost of government from the voter and encourage the development of expensive bureaucracies. Witness the fact that Ontario is the property tax champion of the world. When you have a situation where local politicians can introduce spending programs, load the cost on business taxpayers and not be accountable to voters, you end up with far more local government than need be.
Now I'll ask Ted to go into the details of Bill 106.
Mr Ted Mallett: Moving back to what our members are looking for, our theme has been consistent in the submissions we've made over the past number of years to the GTA task force, to the Who Does What panel and to the provincial government in various other submissions and letters. Our members are looking for fairness not just within tax classes but between tax classes. They're looking for balance. They understand that you cannot change the system overnight. They are looking for ways to gradually move back to a fairer system. They're looking for accountability, to make sure that the structure of local government can adequately deal with the concerns of small local businesses, which do not have a strong voice at the ballot box, and they're looking for hope, because there are clear distortions in the system now. They need a signal from the government that things will get better, not worse.
Clearly we believe that many of the provisions within Bill 106 will be harmful to the small business community. Our main point of opposition is on the variable mill rate structure as defined in the legislation. We expect that our members would pay more as a result. Our experiences with variable mill rates in other jurisdictions across the country have invariably shown that the business share of taxation goes up; it has never come down. There are limits set within Bill 106, but even with those, we feel they are insufficient to stem the approach of many local governments to want to load as many taxes on the business sector as possible.
If you want to refer to page 6, I can explain graphically how the legislation would affect our members. We do not have full details yet as to where the upper and lower limits of the so-called transition-ratio range will be. But when it is determined over the next couple of months, it would effectively create three groups of municipalities across the province. If you lined up all municipalities according to their transition ratio, that is, the effective rate of business tax over the effective rate of residential tax, you start from a very low and go to a very high area, and we would imagine that the range would be somewhere in the middle.
Under the first group, which is on the left-hand side of the chart, if municipalities are below the prescribed minimum range, they would not be allowed to lower their effective tax ratio, but they would be allowed to increase it; if they're within the range, they would be able to move freely back and forth; and if they are above the upper limit of the range, then they would be restricted from being able to increase that distortion, but they would be allowed to reduce it.
Given our experience with how local governments deal with this kind of power or ambiguity, clearly the direction would be up and not down. We've shown that in black arrows as a likely direction of movement of the tax ratios, and the grey arrow is allowed but highly unlikely. So before, we'd have a range of municipalities, but after, quite clearly you'd see, within a very short period of time, local governments would cluster around the upper edge of the defined band whenever that is determined.
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We recommend something somewhat different but still within the ability of Bill 106 to accomplish. We believe the province should set a target ratio at 1.18, which is the existing legislated difference in mill rates, and this ratio must be set in legislation, not regulation. Municipalities with ratios below that target would be allowed to gradually increase it, and municipalities with ratios above that target level would gradually be allowed to decrease that over time.
The second point that is also very important to our members is business occupancy taxes. CFIB strongly recommended that they be eliminated. Despite the statement by the minister yesterday in saying that these taxes were eliminated, we disagree. In fact what happened was that these taxes had been blended in to the realty tax system. They have not been eliminated at all. They have simply been called another name and blended in.
We recommend that the province take another approach and gradually phase out the statutory rates by 5% per year. This would eliminate the occupancy tax for small businesses within about six years, and for the largest firms, banks and so on, it would take 15 years to get the occupancy tax system out of the property tax scenario.
We're also concerned about the phase-in measures dealt with in the legislation. We strongly believe that no one class of property should be allowed to subsidize another class of property through transitions to a more appropriate, more level playing field for taxation, and we believe the legislation needs to be tightened up in this regard to ensure that the business sector does not have to pay for tax offsets or tax subsidies or transition allowances for the residential community much along the lines of what was -- the system proposed by Metro Toronto back in 1992 clearly was a huge disaster for the small business community and we would hope that provincial legislation would prevent that kind of game-playing from being carried out again.
CFIB is also concerned about the impact of the education tax uploads. We're concerned that the upload removal of education from the residential portion would come completely off the residential portion but the download conceivably could, in part, be applied to the business community and that would effectively raise business taxation in the province.
Finally, with the development of new tax classes, we can understand the goals of the government in saying, "If there is need to offset or create lower tax classes for particular businesses or small business, then one should do so." We believe special measures for special classes are inappropriate in principle. If we had a properly functioning system in the first place, then these special rates would not be necessary, because conceivably it could be a backdoor approach to bonusing or could create internal divisions within the local business community. We believe that ultimately government should be looking towards reducing the number of tax classes in the system and not increasing those.
In conclusion, CFIB strongly feels, and the evidence behind us is pretty conclusive in showing, that taxes will increase on the business sector if they are allowed to do so, and we hope that the province can take strong measures to provide hope to the small business sector. They want to see their taxes reduced over time and not increased.
The Chair: Thank you very much. We have about six minutes left, if we could use that time for question period.
Mr Gerry Phillips (Scarborough-Agincourt): I appreciate the thoughtful brief, as usual, from CFIB. We normally get about one question, so I'll just try and pick one area, the business occupancy tax. We can't get from the government any impact studies, which we think is most unfortunate, because we're going to be asked to approve legislation and then be held accountable when it hits the street, without knowing the impact. So we've done our own little calculation. My assumption on the business occupancy tax is this: Every municipal politician I've talked to has said that the most likely event, or the event, will be that the business occupancy tax will be added back on to commercial-industrial, and second, by this law, it has to be added back the same across the board by definition.
The calculation I've done suggests that things like -- I hate to use a bank tower, but in Metropolitan Toronto that is the one that's most easily identified -- a bank tower could be looking at a tax decrease of $4 million or $5 million, without much doubt, and small businesses -- I use the bake shop -- would be looking at a fairly substantial increase in their property tax.
You've got this table in here which I can't quite put dollar numbers around. Would you agree with the assessment I've done, or have you done a different one that would show different numbers in terms of the impact of redistributing the business occupancy tax?
Mr Mallett: A lot of the dollar-for-dollar impacts really depend on where the 1997 assessment falls out, but we do agree with your belief that the small business sector will pay proportionately more as a result of the business occupancy tax being evened out across the business sector. If you look at the chart in figure 4, most small firms are in the 30% tax class. The best number we've seen is that the average is around 42% if all the properties were blended together for a single tax. Conceivably, that means about a 35% increase in the business occupancy tax portion for the average small business in the province. We call that unacceptable, particularly in light of the huge distortions that are also present on the assessment side as well as the rate side.
Ms Andrew: Incidentally, we have requested numbers and have not received them either.
Mr Gilles Pouliot (Lake Nipigon): My friends, a renewed pleasure indeed. As always, I've come to expect the kind of presentation which is well researched.
I'm wrong this morning: I had expected that you would support -- the government has support from the bankers. The government has support from hotel owners and large apartment-unit owners as well. I'm sure they will pass their savings along to the consumers, as they usually do, or part of them.
I don't wish you to be too political, but I just want to set the table, with respect. Mike Harris promised that by the year 2000 there should be a 10% decrease in property taxation. The people I listen to are sceptical, because all kinds of things can happen in the future years and they can see some of the downloading coming up.
You've painted a scenario whereby you remove the education portion of the tax bill at the residential level, but at the commercial and industrial level it stays, and then as you take on new responsibilities for general purpose, you will get the surplus. That's an entirely possible scenario, right? You are not a beneficiary of a decrease or of a tradeoff because you still pay school taxes, and any excess burden at the residential level for general purpose, because of new responsibilities, you'll be asked to again pick up. Bill 106 could result in an increase in taxes, not a decrease. That's what you're saying, right?
Ms Andrew: Absolutely.
Mr Pouliot: And you've talked about Ontario being the champion of property taxation.
Ms Andrew: The worst in the world.
Mr Pouliot: This really appals me. What you have with these Reform-Conservatives is as good as it gets for business people; that's what they say. But unless you're a banker or an insurance company, you're like the rest of us. You might as well go and work at the factory with a T4, because this lot here are not your friends. They're the friends of the big ones.
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Ms Isabel Bassett (St Andrew-St Patrick): A couple of points of interest in your submission; certainly we'll be looking at it, but there are a couple of points I'd like to raise. Currently, as you know, there's $200 million in arrears in terms of collecting on the BOT, and those savings should be able to be passed on once we have a system that we feel will be more equitable.
Then my colleagues keep talking about a 42% blend; I have some figures here. If that indeed is the case --
Mr Phillips: The CFIB said that.
Ms Bassett: All right -- then these companies have the opportunity of decreasing their payments. For example, small businesses that provide consulting and financial services pay at 50% or 75%; small manufacturers pay at 60%; retail chain stores with more than five outlets pay at 50%; small engineering firms, medium professionals pay at 50%; and small software developers and high-tech firms pay at 50%. Those companies would stand to see a decrease.
Ms Andrew: Absolutely. There are companies in all those categories, but we're saying that predominantly small business categories would tend to be lower than the average and predominantly big businesses would tend to be in the higher than average. So when you average it out at 42% or whatever it is -- we haven't been given the data to know exactly -- then disproportionately, small businesses will see their rates going up, although some may enjoy a benefit.
Mr Mallett: These businesses that you mention would see a larger decrease under our proposal than under the proposal under Bill 106. Anybody within the business sector, including banks, including trust companies and consultants, financial planners and so on, would see larger decreases as a result of our recommendation as opposed to what the province is proposing.
The Chair: Thank you very much. I appreciate the presentation made by the Canadian Federation of Independent Business. Thank you very much for coming and seeing us today.
Ms Andrew: Thank you for the opportunity.
ASSOCIATION OF MUNICIPAL CLERKS AND TREASURERS OF ONTARIO
The Chair: We now welcome the Association of Municipal Clerks and Treasurers of Ontario, Mr Ron Shaw. Welcome to the committee, sir. We have 20 minutes together, and if you have any remaining time, we'll use it up with questions.
Mr Ron Shaw: Mr Chair and members of the committee, my name is Ron Shaw. I'm the immediate past president of the Association of Municipal Clerks and Treasurers of Ontario, what I'll refer to as the AMCTO. Our current president will be addressing your committee hearing scheduled in Ottawa later this month. With me today is Bob Heil, who's the corporate manager for the town of Haldimand and a fellow member of the AMCTO board of directors.
The AMCTO is the largest voluntary professional association for municipal government managers in Canada. Clerks, treasurers and CAOs are a part of self-regulated profession in which the AMCTO is the professional certification body. The association has been in existence since 1937.
Our current membership is over 2,500 municipal officers and our members are represented in approximately 93% of municipalities in Ontario. Clerks and treasurers provide the expert administrative support required for the efficient, continuous and professional delivery of municipal services. Clerks and treasurers are akin to the non-partisan heads of departments in provincial and federal government administration, where a neutral expert public service is central to effective administration.
We're here today not to condemn, nor to condone, Bill 106. We're here because we are the ones who will be responsible for ensuring effective implementation of this new legislation. We believe we have a duty to flag concerns and issues that could be problematic once Bill 106 is passed and applied across Ontario, and we'd like to provide some foresight into the restructuring affairs. I begin by expressing our appreciation for the opportunity to appear before the committee and to put our views on Bill 106 before you and on the public record.
There are numerous issues the AMCTO could raise with regard to Bill 106; however, we will not inundate you with all of our detailed concerns. Rather, we have provided you with a separate written submission that identifies AMCTO's concerns and details our recommendations.
In order to make this presentation more digestible and to fit it into the time we've been allotted, we would like to take this opportunity to raise our priority issues and recommendations. There are six key issues: (1) current value and current use; (2) multiple use properties; (3) increases during a current value year; (4) upper-tier requests for assessment rolls; (5) notification by the assessment commissioner; and (6) authority of assessment.
Our first concern relates to the current value and current use provision. Section 12 of Bill 106 repeals subsections 19(1), (2), (3), (4) and (5) of the Assessment Act and provides the option for the current value of land to be related to its current use. Further, the new section provides that regulations passed by the minister on this issue will not apply unless a municipality opts to have such regulations apply.
This entire section is confusing and is further complicated by the extent to which it depends on regulations. This section requires significant clarification or it could possibly turn into another source of costly appeals. Why? Well, for some fairly basic reasons. This could potentially lead to an instance where land with similar uses and of similar value could be assessed differently depending on whether a given municipality opted in or out of these provisions.
For example, two identical properties being used for farm purposes in two high-growth municipalities could have substantially different assessments depending upon whether or not both municipalities chose to implement the regulations related to current use, particularly if the property class that applies is determined by zoning or adjacent uses or some other similar criteria.
Our second issue revolves around several questions arising from multiple use properties, including: (1) How will the information related to multiple use be presented on the assessment tape? (2) Will the residential component of a farm property and a set portion of the land be assessed at the residential rates?
Both of these questions must be answered and communicated early in the process to allow municipalities to make the necessary adjustments to computer systems, tax history files and property tax procedures. This matter may be less of an issue once it is clear how the information related to multiple use properties is to be shown on the assessment tape.
The third issue we will raise relates to the increases during a current value year. The bill provides that any changes that would increase the value of a property during a valuation year must also be applied to any increase in the value for any year included in calculating the average value. AMCTO recommends that the same rule apply to decreases in value. There should be consistent application of a principle or methodology that applies to changes in value of a property, regardless of the reason for the change.
The fourth issue we will raise relates to section 24 of the bill. It provides for the addition of subsection 36.1(1), which requires an upper-tier municipality to request the last returned assessment rolls for those municipalities within its jurisdiction in order to receive them. Why not just make the delivery of a copy of the roll to the upper-tier municipality mandatory? That would be a commonsense provision.
In a two-tier system, the upper-tier municipality is responsible for establishing the tax ratios for use within local municipalities. Please refer to section 363(3) for the establishment of the phase-in provisions related to tax increases or decreases, section 372(1), and any tax deferrals for low-income or senior taxpayers. If the upper-tier delegates these three responsibilities to local municipalities, the legislation should also provide the upper tier with the option of declining to receive a copy.
Section 25 of Bill 106 provides for the addition of section 39.1 to the Assessment Act. This brings us to our fifth concern, regarding changes to the appeal process. Subsection 39.1(4) provides that the assessment commissioner shall notify the person requesting the reconsideration if the commissioner is satisfied that no settlement is possible. AMCTO is concerned that the commissioner is not required to provide this notice prior to the expiry of the time limit for making a complaint.
To reduce liability and provide an acceptable level of customer service, the AMCTO recommends (1) requirement for the assessment commissioner to respond to such a request prior to the end of the appeal period, or (2) provision for an extension to the appeal period for a predetermined number of days after the person receives a response from the assessment commissioner.
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The frequent reference to questions of law and the authority of the Assessment Review Board to either rule on, refer or have its decisions appealed to the Divisional Court on a question of law are confusing and therefore are the basis for the sixth issue we will raise. AMCTO would recommend that these sections be consolidated and that the right to seek leave to appeal to the Divisional Court on questions of law be retained in all circumstances.
We've raised six issues and provided six recommendations to address them. It should be reiterated that the AMCTO's recommendations included in this presentation are aimed at improving the operational aspects of Bill 106. As stated at the outset, in the interest of time we have prepared a fairly lengthy set of issues of detail already raised with the ministry officials and supplied to you today.
It should be emphasized that the AMCTO fully recognizes the need for municipal reform. We believe we have a valuable role to play in this reform process and would welcome that opportunity. Foresight is always better than hindsight.
We look forward to appearing before this committee again as the process continues to unfold. If you wish to hear our views on any aspect of the reform process, we hope you will contact us. We thank you for your attention.
The Chair: That leaves us with about nine minutes. We'll have three-minute question periods, starting with Mr Pouliot.
Mr Pouliot: Thank you, gentlemen. You've indicated to the committee four or five, to say the least, ambiguous or least detailed -- in this case, the devil is in the details, I can assure you. This goes to the process of regulations, in which you will not partake. They will not come and ask you for your good thoughts, your guidance and leadership, but you'll carry the guilt, you'll carry the can big time.
Before this, I was for some 10 years involved in municipal and regional politics in northwestern Ontario, and I had the opportunity firsthand on many occasions to value your expertise. In fact, you kept us alive through the expertise of clerks, clerk-administrators and clerk-treasurers.
There are 3.8 million properties, units, that will be reassessed. It's never been done before in North America, and all this has to be done in less than a year from now. It will, by and large, be conducted by amateurs, because they've decimated the staff -- we know their intent there -- so they're going to the private sector. If you can train H&R Block in a couple of weeks -- I mean, these people will excel, just like instant coffee. "You go and assess a property, we'll give you $30," and they'll give $12 to the assessor and pocket $18 for an administration fee; after all, they're in business. It's going to be a mess. Brace yourself for a lot of appeals.
I hope the questions you've raised are answered through some amendments to the proposed legislation. This House, as you are well aware, is not opposed to listening to amendments. We will be presenting some amendments. We're not opposed to doing that. In fact, we're quite practised at it, focusing on the needs of the community.
How do you fear the downloading coming down your throat next year? If I were to ask you 10 questions, do you know how much it's going to cost you? What are members of your association saying? Are you going to be able to pass along a tax break, or is it going to cost you more? What are people saying out there?
Mr Shaw: With respect to our members with regard to the announcements from mega-week? We didn't come specifically prepared to address that particular issue, but I think it's fair to say that we're prepared to implement what the government sets forward, and we need the information to do so and we need the tools and we need ample notice and information to do so.
At this point in time, there's a lot of concern about the cost these will place on municipalities, and there's not been a great deal of information at this point to come up with any accurate figures, although preliminary estimates in many municipalities have caused grave concern.
Mr Tim Hudak (Niagara South): Thank you, gentlemen, for your presentation. Members of the committee, it's good to see Bob Heil here. He's a town crier in our part of the peninsula, and it's good to see him in this century's clothing. You're a good-looking guy after all, when you take the hat off and such.
My question, gentlemen, is that we've heard from some groups previous to you today concerned about the flexibility given to municipalities. In the Niagara Peninsula, with market value assessment, there were a great many complaints. This bill gives more flexibility to municipalities in terms of deferring tax, in terms of working within bands, protection to low-income seniors, and special rates for certain commercial enterprises. Some concerns from previous groups were that it is too much flexibility to municipalities. What are your feelings on these provisions that make it different from, say, the market value assessment that was put into Niagara a couple of years ago?
Mr Shaw: Our association hasn't particularly addressed that point. We've tried to focus on the implementation concerns with regard to this. As I said before, our major concern is that we get the information we require early enough to efficiently administer whatever changes are contained in those. That particular issue is not one we've put our attention to. We will administer whatever's set forward in the act.
Mr Hudak: I just wondered if you'd support that principle, if you've gotten around to addressing those issues.
Mr Bob Heil: The answer would be that the local municipal councils need the autonomy to make the local decisions. Coupled with some of the decisions to transfer and change and some of the issues that will be coming in the future, the local councils do need the autonomy. There are a lot of things in this legislation that we would like to have as quickly as possible in regulation. Our association is well known as a training agency for most of the clerk-treasurers and CAOs in Ontario, and we need that information so we can set up training. Coupled with that, we also have to explain all of this to our new councils, and it's going to be a challenge. But I think the autonomy and the opportunity to have greater autonomy will mean greater acceptance at the local level.
Mr Phillips: On our side, we'd sure like to know what they're talking about, because we haven't seen any of the -- there's more legislation coming that will allow for two or three classes of commercial, but the people who are here supporting the bill like the fact that there's only one class of commercial. We're dealing with a bill where we can only see half of it. Those who want two classes of commercial are being told by the government, "Don't worry, we'll give you that," and to those who don't want it they're saying, "We've got the bill here with only one."
We in the opposition have an enormous sense of frustration right now, because we can't figure out in detail -- we can make estimates -- what this is all going to mean.
For example, the business occupancy tax, as we look at it, is going to mean dramatic decreases in property taxes for some -- normally, in Metropolitan Toronto, which I'm more familiar with, big bank towers -- and big increases for small businesses. Has your organization been able to analyse the impact studies from the province so your organization can understand what the impact of this bill will be?
Mr Shaw: We've also indicated that we would very much like to see the regulations to be able to come up with some assessment of that. We anticipate that those regulations will have a big impact upon how we perform our jobs, and we are very clear as to our desire to get those regulations as soon as possible so we have the time necessary to implement what's in front of us. Many of us come from municipalities that have gone through some form of reassessment, and when you do that there's always a shift.
But as far as a comment about whether that's good or not, that's not the role of our association. Our focus is on the implementation of whatever.
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Mr Phillips: So you haven't seen any impact studies.
Can I ask you a quick question? In your opinion, can this be implemented within the timetable we're on right now? You are the people who will do it.
Mr Shaw: A lot of it comes to getting the information we need. What we're saying is that we're prepared to implement it, like we've implemented many pieces of legislation throughout our careers, and we ask again for the regulations and the rest of the information in order that we have time to do so. If we get them in time, we will do our very best to make sure we do that.
The Chair: Thank you very much. We appreciate the Association of Municipal Clerks and Treasurers of Ontario's presentation today. Given that you will be the ones implementing this, your thoughts are very much appreciated.
BLOOR BATHURST-MADISON BUSINESS IMPROVEMENT AREA
The Chair: We now welcome the Bloor Bathurst-Madison Business Improvement Area, Mr David Vallance. Welcome to the committee. We have 20 minutes together.
Mr David Vallance: Good morning. I come from a business association that went through this in 1991 with the Metro proposal, and what I learned then and what I've learned since has helped me form a lot of opinion on this subject. I really think, like with the megacity bill, that you'd better go back to square one. However, here we go again.
Every few years a government, with the prodding of various interest groups, decides to "fix" the assessment system. How do they propose to fix it? By doing the same thing that caused the problem in the first place.
When it hits the fan a year from now, you are going to wonder what hit you. The assessment office predicts 900,000 appeals. Each of those appeals is going to affect two or more people, and they will all be as mad as hell, because the system you are using has been fully discredited time and again.
In California and Florida, the taxpayers rebelled and replaced the system with what I call a system by default, or acquisition value assessment. Others will no doubt be talking about that, so I won't elaborate.
What I'd like to do is go to first principles, which is to say, "What are you trying to do?" and then talk about ways to do it.
Up until the Harris government, the objective of property taxes was to provide funding for municipalities and schools. I haven't figured out what the Harris government is trying to do yet, because I don't think it knows itself. But assuming that the above objective is the raison d'être for property taxes, the next question should be, what is a reasonable way of allocating the share of the funding required among the residents of the province? The next question is, what is a reasonable way of allocating the share of the funding required among the residents of each municipality?
The first question is necessary because taxes for school funding should really be a broad-based tax that spreads the cost of schooling across the whole province. It isn't, but it should be. I personally have less problem with school taxes than most people, except to the extent that school costs have gotten out of line with reality and need some correction. I'm a cottage owner, so I also have some concerns about that, on which I will comment at the end.
Over the last few years, I've picked up the financial statements for several municipalities within and around Metro. The statement of operations for each lists the income sources, which include taxes, grants, fines, fees and other sources of revenue. The revenue side is an interesting area, but not the one I wish to examine.
On the other side of the ledger are the expenditures. All of the statements include most of the following for both capital and current operations: general government, protection to persons and property, transportation services, environmental services, health services, social and family services, recreation and cultural services, planning and development.
If you examine these items, it will soon become apparent that very little of the money spent has any relationship to either individual properties or individual people. Garbage pickup takes about 5% of the total spent, so even if you could cut garbage pickup and disposal in half, the savings would be 2.5% of the total. Why so much time is spent talking about garbage is beyond me. Some environmental, transportation and planning costs may be allocated to individual properties, but most of the items are already on a user-pay basis. These are water and sewer charges and hydro, which are provided by the municipality.
Money is spent on general government, police, firefighters, recreation and cultural services and most of the other items, not for the benefit of the individual, but to provide a framework and structure to society that allows us to go about our business in a civilized and reasonably safe way. It allows business and commerce to flourish and, particularly in a big city, it prevents individuals and communities from being devastated at the whim of powerful individuals or organizations.
I suggest that we all benefit more or less equally from the money spent by the municipality. Margaret Thatcher saw the same thing, but her solution did not work. Interestingly, because of the failure of the poll tax and the need to restructure the whole property tax system in Great Britain, the British council tax was created. The British council tax provides some interesting information on the structure of the property tax system.
The property tax system: There appears to be a lack of division between assessment and taxation in the current system. Assessors make valuations based on the use of properties, and different methods are used to assess different classes of property: apartments and single-family, for example. I suggest that assessors should be asked only to assess a property and the local government should be asked to design a tax system for the municipality. Guidelines should be set out to prevent municipalities from competing with each other on the basis of distinctions between property classes. The current classes would probably have to remain and new ones added to develop a proper property tax system.
If elected people are going to make the decisions on how much tax should be charged to each property, then what is the role of the assessors? Actually, their role should be to deliver an unbiased, non-judgemental, totally objective number to the municipality so the tax policy can be properly applied.
The easiest way to get a non-judgemental, completely objective assessment number is to use measurement. It is hard to argue with a measuring tape. Most people who support this system, called unit assessment, want to measure the floor area of the building and perhaps a portion of the land as well. In some ways cubic measure would do a better job, but the difference is not important for this presentation.
This system has been dismissed because of the famous house in Rosedale paying the same taxes as the famous house of the same size in Parkdale, even though one is worth two or three times as much as the other. You can figure out which is which. I suggest the house in Parkdale probably has two or three times as many people living in it as the one in Rosedale, and probably requires two or three times as much expenditure by the city as the one in Rosedale. The one in Parkdale probably generates an income for somebody. As far as I'm concerned, they should both pay the same taxes. The difference in the value between the two is what determines the purchase price. There isn't any time here to develop unit assessment fully.
The British council tax provides some ideas about the tax system as opposed to the assessment system. Simply put, the British council tax puts all residential properties into eight broad bands based on a rough estimate of value. The first band will include all houses up to roughly $100,000, the next from $100,001 to $150,000 and so on up to the top band, which includes everything above, say, $500,000. Those are not the actual numbers; they're just for illustrative purposes. The assessment follows the principle of being non-judgemental, unbiased and objective by avoiding using an actual number for value.
The tax policy deals with the problem of minor errors in assessment. The tax on the properties in the highest band is only three times as much as that of those in the lowest band. The result is that even if you are slotted into a higher band than you think you should be, the difference in tax is not that much. This also eliminates the need for regular reassessments, and according to some people involved in the system, the tax has wide public acceptance. Incidentally, seasonal homes occupied less than six months a year and those occupied by a single person pay only half the tax.
The same people who said that the British council tax had high acceptance also said that the tax for businesses based on market value assessment was subject to 900,000 appeals out of three million properties at the moment. They are looking at ways to do something the same for business assessment as the British council tax does for residential.
This is a widespread problem. There is a mistaken belief that the assessment problem is confined to Toronto. In fact, it has created havoc across the province. I suggest it is responsible for hollowing out the business core of many small towns and cities all over. The difference is that none of them had the resources to fight back. I believe others will talk about this issue.
Small business owners in different discussions accepted the concept of the same tax for different locations, with the rent being the levelling factor. What they cannot cope with is a tax that is unpredictable, bears no relationship to the services provided and changes due to circumstances beyond their control. In fact, the changes may be the result of their efforts to improve their business. Market value assessment is a killer of self-improvement.
Conclusion: If you haven't sunk the Harris government with megacity, schools, hospitals, downloading, welfare and whatever other things you come up with in the next two years, then just think about the 900,000 appeals, a large portion of which are in your natural constituency. The minister has been given all this information and has chosen to ignore it. I suggest he is a bureaucrat at heart and is providing all his friends in the bureaucracy with lifetime jobs. The minister will likely retire on his three pensions. The losers in all this will be the people of Ontario, who have to pay for a completely flawed assessment, and of course all the Harris government candidates who get thrown out in the next election, because in Ontario we no longer elect governments, we throw them out. The mandate comes only if you get elected for a second term.
The last page is a picture of what this act looks like.
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The Chair: Thank you very much. That leaves us about three minutes for each caucus. We'll begin with the government caucus.
Mr Douglas B. Ford (Etobicoke-Humber): Good morning, sir. When I hear all these various views on the taxes, what about a location tax? I'll give you an example: You have a store selling at Bloor and Yonge streets, and you have an equal-sized property in the back street, same square feet and everything else in there. What about a location tax?
Mr Vallance: I think I dealt with that in my submission when I said --
Mr Ford: You mentioned Parkdale and Rosedale.
Mr Vallance: Okay, but the same applies to businesses. In fact, I've had better discussions with business people on this than I have with residential people, although generally speaking I've had pretty good agreement with residential people too, because I'm also chair of a residents' organization that covers the city.
The business tax on different locations I have discussed at a TABIA meeting, which is the Toronto Association of Business Improvement Areas, the umbrella organization for all the BIAs in Toronto. There were about 10, maybe nine, organizations represented at that meeting. The chair of the organization, Alex Ling, who may be presenting, understood this concept very clearly. When people said, "What about my business at Dundas and Keele versus the one in Yorkville?" Alex said: "No problem. Your rent at Yonge and Bloor is $20 a foot and out there it's $5 a foot. That's the difference." They both receive the same services, and in fact the one out at Keele and Dundas may receive more services in terms of police and some other things than the one at Bloor-Yorkville because of the different clientele. So they didn't have a problem with it.
Mr Ford: Which way didn't they have a problem with it, the valuation of the tax or the valuation of volume done in the business in that location? You might have one out at Dundas and Keele doing the same volume as the one in Yorkville.
Mr Vallance: That's fine; that's an operational thing. If the rents are different, that deals with the perceived value of the two different properties. If you can do the volume of business out at Dundas and Keele with the same floor area as Bloor and Yorkville, I suspect Dundas and Keele will show a big improvement, which would certainly help the city.
Mr Ford: Would they have equal taxes?
Mr Vallance: They would have equal taxes, yes. The rents are different. One's $20, one's $5, and that's where they --
Mr Ford: Yes, I realize that, but one might be doing the same amount of business, the total volume of business. Ed Mirvish, for instance, at Markham Street, is a self-developed property. Then you have one over on Yonge Street maybe the same size, but it's doing half the volume or a third of the volume.
Mr Vallance: I give Honest Ed a lot of credit for marketing.
Mr Ford: That's what I'm saying. We give him credit, but --
Mr Vallance: But he pays income taxes on that volume. The property taxes for the city's costs are the same for both businesses if they're the same size, as far as I'm concerned. Business people clearly understand that. I've discussed this with many of them.
Mr Ford: In other words, it's fair that one has more volume, traffic flow and everything else, advertising rights, more than the other person.
Mr Vallance: Absolutely. You pay more for a square foot of space in the Eaton Centre than you do in the Dufferin Mall as a business, and that's what it's all about.
Mr Phillips: Thank you very much. You indicate that there's a concern about appeals, perhaps as many as 900,000. Where did that come from? Is it your judgement or have you talked to some people?
Mr Vallance: I was involved in setting up a province-wide organization to fight market value assessment about a year ago. We've got people in this organization across most of southern Ontario -- not every area, but in all areas of southern Ontario. This came as a result of the work involved in that, because we're in constant touch with people at city hall in Toronto who are very interested in this, Peter Tomlinson in particular. I may have heard it from him, I may have heard it from one of the people who is in touch with assessors and so on, but we heard it from an internal source.
Mr Phillips: I think everybody agrees there's a need to change the property tax system in Ontario. That's virtually non-debatable. The issue is really, does this bill work or not? That's what we're concerned about.
Mr Vallance: Exactly.
Mr Phillips: You represent the Bloor Bathurst-Madison Business Improvement Area. One of our concerns is that one of the provisions in the bill is to get rid of the business occupancy tax. You know what that is. In discussions with municipal people, because the municipalities can't afford to give up $1.6 billion of necessary money to cover the services, it appears that it's going to be put right back on the commercial-industrial sector. It appears from the numbers we've done, and incidentally from the Canadian Federation of Independent Business, that it's going to disproportionately hit small business. Has your organization had a chance to look at that and do you have any advice for us on that?
Mr Vallance: No to the question, have we had a chance to look at it; not as an organization. Most small business operators are not terribly sophisticated and don't have time to look at the papers and follow what's going on, so they don't know this is happening. I'm aware of what you're talking about and it is of considerable concern both from the residential side and from the small business sector. I don't know if you're aware of it, but Commerce Court was worth $1.2 billion in 1988 and now it's worth $300 million or $400 million, according to an expert. Can you knock two thirds of their $39 million in business and property taxes off that for the city of Toronto and expect somebody else to pick it up? I don't think so. So you're going to have legislated taxes here.
What I see happening is the same thing that is so typical of what has happened in the last couple of years: The government's been rushing into things without doing any preparatory work in terms of discussion with the people involved who know intimately what's going on.
There's another aspect of this act which involves BIAs. That has big implications for property owners and business operators, but nobody has thought about it at the government. This type of thing wouldn't happen if there were a proposal, discussion, redrawing, proposal, discussion, and then bringing forward an act that's got some sense to it. With this rushing things out and then dealing with it, there's no time to do it right; there's all sorts of time to do it over, and that's what's going to happen here. A year from now, I guarantee that those 900,000 people across Ontario are going to raise such a ruckus, this government's going to say, "We'll fiddle with this for the next five years to try and get it right."
It's not working in British Columbia, by the way. The city of Vancouver is trying to get off as much of their value-based assessment taxes as they possibly can. They're going to user-pay, they're going to parcel taxes and other forms of flat taxes that level out these ups and downs. Since 1989 they have had an adjustment to their taxes in Vancouver for either the business or the residential, or both, in every single year. That's no way to deal with a tax system. There are other and better ways of handling it.
Mr Pouliot: Good morning and welcome, sir. I'm intrigued by some comments on page 4 of your presentation: "The minister will likely retire on his three pensions." This is not the kind of comment, with respect, that I would have expected as we focus on the intricacies and the pros and cons of the bill, but since you've mentioned that, which three pensions are those?
Mr Vallance: He's getting one from the Urban Development Transportation Commission, I understand, and he's getting a supplementary pension from the TTC, and I expect there will be a sinecure from his four years here or whatever it turns out to be.
Mr Pouliot: Very small, because Mike Harris did cut the gold-plated pension he used to refer to.
Mr Vallance: Well, there are other ways of dealing with those issues.
Mr Pouliot: I was intrigued, and this is the focus of my question, by the Rosedale and Parkdale analogy. With respect, unless you tell me more, I'm not comfortable with its validity. I come from the premise that one way to judge a person's wealth is by the property they occupy. It's not foolproof, I agree, because it's a matter of choice of lifestyle etc. Income is one, of course, and that's more obvious perhaps.
For instance, most people I associate with, the great majority -- because you court what you are and you attract that manner of humanity; those are the milieu -- we can hardly afford to take a cab to go through Rosedale, never mind live there. Parkdale we're more comfortable with, and we're even more comfortable when we know that the people in Rosedale, to whom we wish very well, are paying more property taxes -- or are they? -- than we in Parkdale. They can afford to pay more because the unit, the mansion -- they're not all mansions, but the unit -- is worth more money. Doesn't that make sense? For instance, if I were to go and buy a car, if I buy a more expensive car than the GM product I drive, of course I would pay more taxes. If I buy a higher property, should I not pay more taxes?
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Mr Vallance: I guess it depends what you're talking about. When you buy the car, you pay more taxes in the form of GST and PST and whatever other taxes the province wants to attach to the purchase of a car. However, once you get that car, the chances are that if you go in to get it serviced, the hourly rate for fixing your car is the same as for the guy who drives in with a five-year-old used car. When you go in to buy fuel or gasoline or whatever you use in your car, the attendant doesn't come out and say, "You've got an expensive car; I'm going to charge you an extra 10 cents a gallon."
The city is providing services, and as I said before, the services we receive are generally not for us as individuals. The police don't protect you as an individual; the police provide an umbrella in society for us to live comfortably. Individual protection is non-existent, so you can't pay a user fee for that. You allocate it on the basis that we're all benefiting from the fact that we have a safe environment to live in and therefore we're buying gas, as it were, and we should pay the same price per litre as the guy next to us.
The Chair: Mr Vallance, thank you very much for coming in and taking the time to present today. We appreciate your input.
NORM GURR
The Chair: We now welcome Councillor Norman Gurr from Southampton. Welcome to the committee, Mr Gurr. I trust you had a safe drive down this morning.
Mr Norm Gurr: I actually came down and stayed at a hotel here. I hope you all know where Southampton is. It's the best-kept secret in Ontario. I was a school principal in Toronto. I retired up there 10 years ago and then went on to the council up there, but I do speak as an individual and not for the council.
What I am giving you today is some statistical information as to what happened when Bruce county was reassessed at 1988 values in 1994. What I really want to show you on this is that everybody knows what a property is worth except the assessor. If you have a copy of the list here, it shows on the left-hand side what they thought the property was worth when they sold it or what the real estate people thought it was worth, the next line over shows what it sold for, and the column on the right shows what it is actually assessed at. You will see that there is very little relationship, if you go all the way down there, between what the house sold for and what it is assessed at, in spite of the fact that the assessors had all of this information at the time they did the assessment. These are sales figures that are around the 1988, 1989, 1990 time span, and I believe it came in in 1994.
What I do point out is that the Charter of Rights and Freedoms says that we are all to be treated equally under the law. This has certainly not been happening in the past, and I suggest that what you propose will also not happen. I don't think it's possible to assess the value of a house accurately. You can see the figures, and they're all over the place.
If you look down the list there, it's obvious that there are a lot of inequities. For example, I've outlined the first one there on the first page. It sold for $74,000 but was assessed at $104,000. If you go down further, you'll see that 262 Lake Street sold for $130,000 but is assessed at $53,000. I have circled four houses that sold for identical prices: $100,000. One is assessed at $69,000, one at $78,000, one at $91,000 and another at $111,000. If you go all the way through all these pages, you'll see on the last page there's one there at 60 Morpeth that sold for $270,000 and is assessed at $119,000. The last sale on the list shows 2 Beach Road, which sold for $290,000 and is assessed at $105,000. That's what's happening out there.
A summation of the figures shows that one house was assessed at between 30% and 40% of its selling price and six houses were assessed at between 40% and 50% of their selling price. You can read the rest of it in your own time, but you can see that there were very few of them that were assessed at what they actually sold for.
I think it's obvious when you look at this that there's a great, wide discrepancy in what's happening out there, and this is just the tip of the iceberg, because these are only the houses that sold. He could have corrected these, but he didn't. Every house in Southampton, in fact all of Bruce county, is probably out of sync in this particular way.
I think there are a number of reasons why this is happening. Unlike income tax or sales tax, which is clear and has its rules, the criteria for property assessment are vague at best. The assessors admit there is a great amount of estimation in what they do. They're frustrated just as much as the people out there about what's happening with all these reassessments and appeals and things going on. They are given a wide discrepancy in how they assess. They can't give you an explanation in regard to how they arrive at a figure. They admit that it is largely a guess. They can't say, for example, that it is so many square feet at a certain figure.
They say to appellants, "If you are unhappy, find other properties with which to compare it." But what happens if they're all wrong in this area, as these figures indicate? What happens when you're paying taxes on properties that are less than market value? The other problem with that particular thing is, if they say to you, "Go and look at another house," you can't walk into a neighbour's house and say, "Can I have a look at your house?" You're helpless when you go to an appeal up there.
The criteria that the assessor have to use, especially the age of the house, create a large part of the problem. That's the problem here. You look at ages, but it depends on a lot of other things besides the age of the house. Older houses can be redecorated and renewed without a need for a building permit, and in rural areas often building permits are not applied for by those who upgrade. They just simply go ahead and do it up there, as you'll find out if you go and live up there. Older houses often receive higher prices because of their charm and the interest in houses of historical significance.
In cities and new subdivisions, many houses are alike and can be compared, but in Southampton I don't think you'll find two houses that are alike. You'll find little cottages and you'll find houses that have maybe 4,000 or 5,000 square feet with all the luxuries. I don't know how you compare them.
Assessors tend to group properties. For example, properties along the shoreline are assessed at the same land value. However, one could be on a sand beach and the other could have no beach at all, be rocks or cliffs or whatever. Yet they're all assessed the same.
The assessors have far too many properties. I think that's the big issue. I was told there are 70,000 properties the assessors have to do up there and they haven't probably done 5% of them ever. They don't go back into these farm countries. They don't have a look at the properties. It's impossible. You don't have the staff. If you've only got four or five assessors, how do you do 70,000 properties? So they are giving you an assessment on something they don't even know anything about.
In addition, I point out this: I've attached for you an Ontario Municipal Board hearing. It was interesting. They found themselves in a real jackpot. It was an appeal that was denied at the hearing and the Woods, who made the appeal, went to the OMB. At that time the assessor finally had a look at the property. The land value itself was assessed far too high; they admitted it was 133% too high. But what they did was, instead of lowering the land value, they lowered the area of the lot. I've pointed out here that I think it was 150 feet wide and 300 feet long approximately; I forget the exact figures. They actually reduced the size of the lot, and therefore every other property in that particular area is assessed too high because they're in such a problem up there in trying to solve all of these problems.
Most properties, as the figures show, are assessed below the selling price: 108 of the 137 houses on the list are assessed below what they sold for. So people tend to accept that and they don't appeal it. What they don't realize is that some people are assessed a lot less than they are.
Again I reiterate, the criteria that the assessors use are one of the best-kept secrets in the world. They refuse to give ratepayers a copy of how they do it or how they arrive at the figures. As I said, most people don't even realize that their assessment is incorrect.
The assessor can enter any property, as I said, but it's impossible for anybody else to get into a neighbouring property, and people just don't understand the assessment, how it's determined. Many are afraid to appeal or lack the ability. It's a difficult thing for people to appeal under these particular circumstances. They tend not to do so.
I request the following if you intend to proceed with this, and I don't think you'll ever be able to do it under these particular criteria you're using:
That the criteria, especially removing the age factor of the house, be changed to reflect a truer estimation of the value of the house.
That the rules be clear and simple and the criteria be easily measurable for the property owner, just as they are for income tax.
That a detailed copy of the rules and criteria that the assessor uses in assessing properties be made readily available to the public. They should perhaps be included in the assessment notices.
That each assessment notice indicate both the land value and the building value, that the figures the assessor uses to determine the value of any property be made readily available to any ratepayer who inquires, and that these be readily and easily measurable and understood.
That all assessed values be at the actual value of the house without any kind of reductions. You should be able to look at a property and say, "I agree that's worth $100,000." The neighbours should be able to say that.
That the assessed figure the assessor applies should be a reasonable amount. People should be able to say that the assessment amount is equal to a reasonable price for any property, and when a property is sold, the assessed value will become automatically the actual sales price. In other words, if a place sells at $100,000, that's what you assess it at.
That all properties in the county be visually assessed by the assessor before this is applied. As I said, it's never been done.
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The problem with actual value assessment is it does not reflect the land owner's income and thus the ability to pay. People's circumstances change. They may lose a good paying job or they may be widowed, and property values in certain areas can increase dramatically. People are forced to sell their houses in Southampton because of the taxes. It seems to me that the property taxes should reflect the people's income that they have.
Or perhaps the government should change its mind and remove all the proposed increased welfare and medical-related costs from property taxes, since these do not have any relationship to the services a municipality provides. They are income redistribution related, and I point out that probably over half of the welfare and medical costs that you are transferring on to Southampton -- over half of it will be those costs.
There are a few other issues, I guess. You're going to put on to Southampton the farm rebate. If a senior finds a tax increase, he can postpone it. Unfortunately, over half our people are seniors, so a lot of people could be deferring taxes. I don't know who picks up the rest of it. You've taken the commercial off. You've removed $1.5 million in transfer payments to Southampton from a $4-million budget already and then they're transferring, as I said, all the welfare on, and then you're threatening amalgamation.
I don't know why it is that governments, when they get elected, try to commit suicide. We had Liberals up there before, Gerry. That was Murray's boondock and they put the Conservatives in this time, and Barbara's doing a great job, but I think you do things to try to commit suicide. However, I'll leave it at that. Thank you very much.
The Chair: Thank you very much, Mr Gurr. That leaves us with about three minutes per caucus for questions.
Mr Phillips: Thank you for taking the time. You've given us a lot to think about here. There are two areas I wouldn't mind focusing on. One is, you mentioned that over half of your property owners are seniors. I think you said that. We heard yesterday that those who may be impacted by it can essentially defer their taxes. The best way to think of it is like a reverse mortgage, so I gather the intent is that municipalities might go to a financial institution and say: "We've got a hundred property taxpayers who can't pay. They own their building. Will you set up a reverse mortgage and pay us? Then when the property is finally sold for whatever reason, you'll get your money back."
Has your council had a chance to discuss that kind of proposal and take any position on it?
Mr Gurr: Unfortunately, our council has been absolutely inundated with all the changes that are coming. We're totally confused about what's happening up there right now, so we really have not had an opportunity to discuss any of this. All I know is that we have had tax arrears, something like 15%, and our accountant came forward and said, "You have to raise taxes and increase your reserves." So we've been trying to get rid of the tax arrears. Basically what you're saying with this is there's going to be a legal way to have tax arrears. That's the problem with it all. But no, we haven't taken a stand. We're just inundated up there, as all councils are.
Mr Phillips: You mention in your brief the change -- we call it dumping, but downloading, whatever is a non-controversial way of saying it, the moving of some of the soft services such as seniors' care, seniors' housing and child social assistance on to property tax. We believe it's a substantial added cost to you. Has your council had a chance to assess how all that nets out? There are some councils, I gather, that think they may get a break. Do you see yourselves getting a substantial break because of that?
Mr Gurr: The figures that I have had a look at mean a 50% tax increase for Southampton.
Mr Phillips: Fifty per cent?
Mr Gurr: At least 50%; that's the minimum. That's the figures that I have looked at myself. It's hard to know because everything is so vague right now. We don't know where everybody is going, but that's the difficulty with it right now.
Mr Phillips: Fifty per cent. That's incredible.
Mr Pouliot: Mr Gurr, good morning. In your presentation, your page 2, a summation of the figures shows that you have a variance of assessment. Is this in the same vicinity? Is it using the same mill rate?
Mr Gurr: Basically it has nothing to do with mill rate. It's what properties are assessed at. The assessment is out by that amount is what I'm saying. The mill rate is the same for everybody, of course.
Mr Pouliot: Please bear with me, sir. The reason I'm asking if it's in the same vicinity or if it's -- you see, the mill rate is often a governing factor. I live 800 miles, our riding is 1,000 miles, some of them are assessed at one third their property value -- it's a small village -- others are assessed at full property value and they both pay the same tax. They are 150 miles apart and so on. This was my focus. That was the reason, because if we're to compare, we're to compare within the same vicinity the assessment of one unit vis-à-vis the other. It's a very simple definition of assessment but it's no less valid than others.
You've mentioned the new responsibilities that you are about to take on: Are you running again, Mr Gurr?
Mr Gurr: No. I've had nine years and I think it's time for me to leave.
Mr Pouliot: How long were you in the school endeavour, educating others?
Mr Gurr: For 28 years. I'm 66 years of age.
Mr Pouliot: Your courage is great, and you escaped just before the revolution bulldozes even our sacred education system.
Mr Gurr: I escaped 10 years ago under an open window that they're offering again right now, actually.
Mr Pouliot: Why not do it all in four years, because you're not coming back? I want to wish you well. A 50% tax increase -- if I were to ask you less than nine months before your fiscal year, which starts in January, what is the cost of ambulance, what is the cost of policing, senior housing, social assistance, highway transfers to you as a citizen of Southampton, as a taxpayer?
Mr Gurr: I don't have those figures with me right now, but in looking at the figures we've had and then discussing it with our town clerk and the people who do know, you're looking at probably 50% if not more, because we don't know what's happening out there. We don't have a clue.
Mr Pouliot: So if a person is on social assistance and has multiple sclerosis, you'll pick up 50% of the drug costs. Do you know how much it costs from the formulary?
Mr Gurr: I don't have those figures for each one.
Mr Pouliot: You've never been exposed to those things, right?
Mr Gurr: All we can do is sort of speculate on what figures we have.
Mr Pouliot: So you would expect that with that train coming down less than nine months from now, as a citizen I would have the right to ask you a question and expect an educated answer. Wow, what a mess we're in. Thank you, Mr Gurr.
Ms Bassett: Thank you very much for your presentation. There are a couple of things I just wanted to pick up on in terms of the assessment. You mentioned you've been there 28 years. Obviously you've seen many changes.
Mr Gurr: I haven't been there -- I was a school principal here in Toronto for 28 years and then I retired. I've been up there 10 years and I've been on council nine years. They saw fit to elect an outsider and they've been sorry ever since, I think.
Ms Bassett: The point I want to make is that we believe that our new assessment system is going to be very fair and we have the advantage of having very up-to-date, modern technology. As you know, even in two years, or one year, technology advances light-years ahead and new technology that we're using has been used in BC with very good results. In fact, a story in the Star in April showed that their appeal rate has been less than 2%.
We're able to quickly and accurately establish the assessed value of ascribing market-driven values to the different characteristics of property. We feel that this will allow us to be very fair within some of the things that you've mentioned should be looked at. We feel that we are addressing those problems. You mentioned the house that has a beach or the house that has rocks. Well, market value or actual value, if you want to pay more for a house on rocks, it's going to be --
Mr Gurr: It's not what you pay. They have it assessed incorrectly, and I guess part of the problem is, and I refer to Gilles over here, that a lot of people who live along the beach are retired people and their husbands have died, or other circumstances, and they don't have the money to pay those kinds of taxes.
The other problem with that is that being a cottage town, we haven't had any new cottages built since the 1988 assessment, so it's terribly hard on our economy in both the construction industry and on our main street.
Ms Bassett: If I could just intervene to say, to allay the fears of people on fixed incomes, that will be up to the municipality, which will have it in their power to defer taxes if they wish or to allow an eight-year phase-in period. There are several areas to cushion the shock if taxes were to increase.
The Chair: Thank you very much, Mr Gurr, for taking the time and travelling the distance to come and present to us.
Mr Gurr: It's always good to come back to the city.
The Chair: The Chair does know where Southampton is. I've visited it many times.
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BOARD OF TRADE OF METROPOLITAN TORONTO
The Chair: We now welcome to the committee the Board of Trade of Metropolitan Toronto. If you would introduce your associate.
Mr John Bech-Hansen: I'm John Bech-Hansen; I'm the staff economist with the Metro board of trade. This is Gord Van Russel, who's a member of our taxation committee.
I'd like to congratulate the government for proceeding to modernize the assessment system, which is something no other government has had the courage to do since the province took over that function in 1970. I think the government is to be commended for following up on many of the sound recommendations they got from the Who Does What panel and the GTA task force. I've outlined some of those in the paper there.
The fact that we're adhering to a value-based system rather than considering a regressive policy such as unit assessment, a common base across the province, annual reassessments, three-year averaging, variable mill rates with some controls over how that's going to be applied, eliminating business tax and streamlining the appeals process -- these are all excellent and long-overdue changes in the assessment system.
We have some proposals for improving and strengthening the legislation. First of all, we think there may be a little bit too much discretion given at the municipal level on how the system should work rather than having it be what it really should be and must be, which is a uniform system province-wide. It's extremely important to recognize that a common assessment policy is as important to the efficient functioning of a province's local governments as a common currency is to the efficient functioning of the economy of a country.
We kind of think that the whole point of reassessment will be defeated if various local options are put in place that are going to let municipalities set up a whole series of artificial dams and levies to lock in current inequities and cross-subsidies between property classes.
We have just a bit of a concern about current value and how that's defined. The point has been made many times that the basic definition of "current value" as "arm's length sales transactions" doesn't really capture the intent of the Who Does What panel, which was trying to see what could be done to eliminate the speculative component in property assessments. They wanted to see properties valued at their value in current use; in other words, perhaps by capitalizing rental income.
The proposed legislation allows for the minister to make regulations for an alternative definition of "current value": "value in current use." Again, it's making this something that is up to municipal discretion. We don't think that's appropriate because one of the critical underpinnings of a fair assessment system is that it be uniformly applied across the province. Without a common assessment base, there are just going to be too many opportunities created for discriminatory practices just as severe as the ones we have already.
Our recommendation is that there have to be realistic current-use principles applied uniformly across Ontario, particularly in the commercial-industrial classes. We don't think it's appropriate to prescribe how this actually gets done in legislation. But whatever needs to be done to amend the legislation to try to get rid of the effect of speculation would be helpful.
There is mention in the legislation of the possibility of additional business property classes being created, and I suspect that will be another piece of legislation. We've given a few points there on why this would probably not be a good idea. We recommend that the legislation be amended to eliminate references to the potential establishment of additional property classes or at least to specifically prohibit a local municipal option in the use of those classes.
I know one of the concerns of David Crombie was that you might need to have a subclass of the commercial class for small retail so that it wouldn't get harmed by the new assessments coming in, although he indicated to me that he didn't really feel it was necessary, perhaps, to have a subclass if we assessed all commercial property based on value in current use. Then you might not need to create additional classes.
Phase-in provisions: We're just concerned here and we want to make sure there isn't a repeat of what happened with Metro's attempt to bring in MVA where they had differential phasing in of tax increases and decreases, all basically aimed at cushioning the residential class, and they would have very severely penalized the business class of taxpayer.
On the subject of variable mill rates, of course, that's the most significant change in the whole assessment legislation. Variable mill rates is something we've accepted for a long time as the only politically acceptable way you can modernize the assessment system across all classes. It's going to bring substantial new powers on municipal councils, and we think that's good. It'll force municipalities to make their decisions about who pays what very explicit in the mill rate, and that transparency in the mill rate is going to encourage some desirable tax competition between municipalities.
We also think it's very appropriate that the legislation is designed so that municipalities which have tax ratios outside the allowable range will only be allowed to move them towards the allowable range. I think that is a very appropriate development.
We have a proposal there on allowable ranges for mill rates. The allowable ranges, of course, haven't been defined yet. With the initial starting point for the transition to whatever the allowable ranges are, we can accept the idea that the transition ratio the government sets will allow each municipality to keep the class tax burden the same, but we think that over time there has to be some levelling out of the inequities in the distribution of the tax burden between property classes. In other words, when these allowable ranges are established, it should be a requirement that over a reasonable period of time all municipalities bring effective tax rates within those allowable ranges. We have a proposal there on how that allowable range might work which I won't describe.
My final point is the business occupancy tax. That's just been in the news in the last day or two. All we can do is really reiterate the concerns that others have expressed: It's a completely outdated tax; it doesn't serve any real, functional purpose any more; the rate structure is inequitable; the assessments were time-consuming to determine; and it was a collection problem for municipalities. We just expect that municipalities will probably opt to fold that business occupancy tax into the non-residential tax and make it an obligation of the landlord; it's just that the legislation has to make sure there is some provision to intervene between landlords and tenants regarding the pass-through of any realty tax increases caused by the elimination of that tax.
I guess that's it, so we'll take questions now.
Mr Pouliot: Thank you for another, however predictable, excellent and consistent presentation. The government expected no less but your full support of its legislation. Some previous presenters have mentioned the possibility of up to 900,000 appeals by virtue of what is being contemplated. For instance, you have 3.8 million units being assessed and reassessed and this has to be done in less than a year, by April 1998. It's been contracted out and assessors are being trained with as little as one day, for instance, and they'll be working at approximately $12 an hour and they'll be overloaded.
Do you fear, because you talked about uniformity, you talked about things being streamlined, well done, businesslike, that it could become a bit of a nightmare and that the end product will not be what was intended?
Mr Bech-Hansen: I think in the transition to any new assessment system you're going to have a massive number of appeals anyway, but that's no excuse not to go ahead and make the necessary changes.
I've had some discussions with other people who are experts in the field, like John Bossons. I tend to agree with him a little bit that perhaps some of the impacts of the transition to the new system, maybe to reduce the number of appeals, would be to change the phase-in provisions so that perhaps the tax increases could be back-end-loaded; in other words, put on towards the end of the eight-year cycle. That might ease the impact to some degree and reduce the number of appeals.
Mr Pouliot: The point is well taken. By way of supplementary, the dreaded business occupancy tax will find its natural way, will no longer be there. You are aware that the larger you are -- for instance, the bank towers will have a substantial decrease in their taxes. I don't wish to malign them further, because I know that sector has been much maligned, and I think not always rightly, but they're an easy target so I have to mention them. They're in my prayer book.
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The apartment and hotel owners: What concerns me with this is that as you remove the educational portion and leave the general purpose at the residential level, but you don't remove -- should there be any dislocation, any overburden, it will be picked up at the residential level through general purpose, in lieu of education-plus. But the small business community will still be burdened with the education levy, and also they'll pick up the slack from the residential as well, so reassessment or no reassessment, the mill rate, the need to generate money will be the deciding factor. I don't think we have to worry, because it's been decreed by the government of the day that municipalities should be able to pass a 10% saving at the property tax level, but when we try to get the figures it's more difficult to cost and therefore justify it. Are you hopeful that your constituency will see a decrease in taxes by virtue of this and other pieces of legislation?
Mr Bech-Hansen: Looking at the assessment system by itself, we don't really see that as necessarily leading to net tax increases or decreases overall. It's just to simply get the level playing field, and as I've been saying many times before, the tax assessment system is the fundamental bedrock upon which all the other changes depend. Some of those changes, as you know, we don't particularly like the way the government has structured the downloading proposals, but we're hopeful that some of that can change, because none of it is in legislation. We're also hopeful that the changes in how commercial and industrial will be paying for education will also contribute to reduced taxes in Metro Toronto, but that is for another time and place.
Mr Ford: Good morning again. Gentlemen, we were just discussing with previous people here, talking about timing and location. We're also talking about a house in Rexdale being the same size as one in Parkdale and being equally taxed. We're also talking about 1902 bylaws still on the books and 1942 assessments still on the books. This is what we're talking about when we're saying equalization of taxes, everybody paying their fair share. That's this government's point, and there are approximately 180,000 of these bylaws still on the books of the overall Metro situation.
I had a discussion with you the other day. We discussed this, and I thought we discussed it quite thoroughly. I would like to get some of your opinions on some of the things I've just mentioned.
Timing and location: I mentioned that there's probably a business property at Bloor and Yonge Street and one opposite, in the back streets, being equally the same size. Should they be assessed at that? The other gentleman told me that one is assessed probably at $20 a square foot, being there, and one out in the boondocks somewhere is being assessed at $2. But I would like to say this: What if the property on Bloor Street was leased for 20 years and, when we had a little bit of a recession there, $2 or $4, because the rent has dropped by 75% and he got a 20- or 30-year lease on it, and the one out in the other place is talking $6 or $10 a square foot? What is your opinion on these things?
Mr Bech-Hansen: The structure of leases, of course, very much affects what people are going to pay. You have raised the issue of taxes per square foot, which I know is one way of looking at how taxes should be assessed. This is called unit assessment, and I know some ratepayer groups in Toronto are very fond of the idea of having unit assessment.
I actually have a little supplementary background paper here that I've used before to talk about the pros and cons of unit assessment, which I don't really think we need to get into here. I think it's generally accepted by the academic community, as it looks at all the different ways that you can assess property, that the fairest way and the one that has at least some relative measure of relationship to ability to pay or income is a tax system that's based on value and that it's not relevant to really just look at area measures.
One thing too against unit assessment is that while you might have residential houses assessed at the same amount per square foot, I don't think anybody wants to say that we want to have the same square-foot tax on a downtown bank tower as on a small retail strip in the suburbs. You would end up having to do that if you have a unit assessment system in commercial-industrial, which is why it's more appropriate to relate it to the value of the building.
Mr Ford: What about timing when you have an assessment? What should the limitations be on timing of assessing properties? Because there are fluctuations in time, business, economics and everything else -- cyclical. Put it that way.
Mr Bech-Hansen: The provision that there is three-year averaging of assessments is very appropriate, and I know that was used in BC, in Vancouver specifically, to deal with the large fluctuations they had there. But the thing that a lot of people overlook with value-based systems is that they think if there's a collapse in value there's a collapse in taxes, and if there's a zoom in values taxes go with it. The value-based system is just a way of apportioning costs between different taxpayers. Generally speaking, when you have a boom in the economy, all classes of property are going up in value somewhat similarly so the tax burdens don't really shift that much between them, and the same in a collapse.
Where you do get tax shifts is if you have a very much larger increase in residential property values than you do in the commercial class, like they had in Vancouver. In Vancouver what they did to respond to that was they kept cranking up the commercial mill rate to keep the class tax burden the same. But my understanding of this legislation is that's not going to happen, because if you're outside of the allowable range you can only move the ratio closer together, not further apart. That's appropriate.
Mr Phillips: Thank you. A couple of questions: One is the business occupancy tax, just because as I always say, everybody's in favour of property tax reform. The question is, does this bill work or not? As we look at it and try to take some examples in Metropolitan Toronto, I think you've concluded the same thing we have, and that is, virtually every municipality will add the business occupancy tax revenue loss back on to commercial-industrial. You recommend, as every other business group has recommended -- CFIB, the property tax people -- that they're not permitted to have other classes of commercial, so you're at the one class.
As we look at it, there will be some significant winners and some significant losers when this happens, as you take the $1.6 billion off business occupancy and put it back on. Obviously those who are paying the 75% or 60% business occupancy tax will be the big winners. Our conclusion would be, a thing like a bank tower -- and I use a bank tower just because it's the one that's definable -- could be looking at a $3-million to $5-million decrease in taxes and small businesses that are at the 30% range could be looking at probably at least a 10% increase in property taxes. Would you agree with those numbers? Is that the order of magnitude we should be thinking of?
Mr Bech-Hansen: I think you may be about in the right ball park, but anything to do with tax shifts and the creation of winners and losers is -- generally speaking, as somebody who's been a winner under the business tax since 1904, perhaps it's about time they did start to lose a little ground to those who have been losing since 1904, and if that happens to be the banks, so be it. But that same high business tax category includes brewers and distillers, so Upper Canada Brewing is presumably getting hit, which is a fairly small type of business. A great majority of businesses which actually operate in the downtown office towers are in the 50% business tax class, which is the implicit, neutral rate that you would have if you just abolished it and folded it into the realty tax, so it's really not a shift for a lot of the actual tenants of these towers.
Mr Phillips: The thing you don't mention here is perhaps the most important thing, and that is what happens to the education property tax. The reason I say that is that over half of your board of trade business property tax goes to education. It is our assumption, because we can't find out from the government, that this amount of money will still be raised off business property tax. You run the risk that it's locked in in perpetuity; 55% of your taxes are locked in there. As I say, I was surprised it wasn't in here. There'll probably be some escalator built into that.
Then you recommend that the ratios be reduced from what I gather right now is three to one -- three for business to one for residential -- to two to one, a reduction of one third of the tax rate, essentially. When you do those two things, you leave education funded off business property tax, 55% of it. You reduce the rate and you leave virtually nothing for the municipalities for their -- I shouldn't say virtually nothing. Probably about 10% of current total business property tax would be left for municipalities because you've left the 55% for education and you've reduced the rate from three to one to two to one. Have you done any calculation on what that would do to the revenue of the municipalities in Metropolitan Toronto?
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Mr Bech-Hansen: We didn't mention the interplay between these other things in the presentation because that's tax policy, not assessment policy. There's a very, very complicated interplay between how all this is going to work, and it isn't absolutely clear to me exactly how the setting of whatever commercial tax rates will be is going to affect what the tax ratios are that have to apply.
I just presume that if we have a transition ratio that has to be three to one in the city of Toronto to reflect the status quo right now, when all is said and done with the commercial tax changes for education and so forth, the transition ratio will still be intended to be three to one, even though that might mean an overall increase in taxes in Metro, which we expect, of $500 million.
The Chair: Thank you very much. We appreciate the Board of Trade of Metropolitan Toronto coming in and taking the time and making your presentation this morning.
ASSESSMENT REFORM WORKING GROUP
The Chair: We now welcome Michael Walker, councillor, ward 16, the city of Toronto. I understand that you'll be sharing your time with the Assessment Reform Working Group as well.
Mr Michael Walker: Yes, I am: George Milbrandt, Audrey Birt from our city finance department, revenue section, and Dr Peter Tomlinson, who is a special adviser on tax matters with the city of Toronto.
The Chair: Thank you very much. We have 20 minutes, if you'd like to proceed.
Mr Walker: I refer to it as Madam Chair. Excuse me, it's Mr Chair.
The Chair: That's happened twice.
Mr Walker: I've just introduced you to George Milbrandt. He's a colleague of mine on the Assessment Reform Working Group. I've chaired the Assessment Reform Working Group for almost a decade and have long admired the dedication our volunteer citizens have brought to the property tax reform agenda. The membership on it has nearly been consistent over that 10-year period.
There are two key points I would like to focus on this morning. The first is that Bill 106 implements market value assessment, period. That's what it does. It takes out existing local option on assessment updates and imposes market value assessment province-wide rather than Metro-wide.
True, MVA has a new alias in Bill 106 and it's called "current value assessment." Market value assessment goes through aliases faster than Elizabeth Taylor goes through husbands. It has gone from market value assessment to actual value assessment to current value assessment in just over one year.
But behind these names are definitions and they have not changed. You have to follow the paper trail to know what is really going on. If you turn to page 14 of the formal city submission, which is this one, the thicker one of the three that you've received, you will see the definitions of market value assessment and current value assessment side by side, and the differences are minor and technical.
Essentially, the Ontario assessment staff have used this opportunity to clarify long-standing practices but otherwise have left things unchanged. Last week, there was a conference on Bill 106 at Osgoode Hall and the experts looked at these definitions. Without exception, they said Bill 106 is market value assessment. You can't find an expert anywhere in Toronto, in or out of government, who will contradict that. At Osgoode Hall, you had lawyers, appraisers and members of the Who Does What advisory panel all agreeing that market value equals current value.
Let me just quote from one expert here: Jeffrey Cowan of Weir and Foulds. In his paper at Osgoode Hall, Mr Cowan said, "The definition of `current value' is very similar to market value." He added that the notion of "unencumbered fee simple," which you see in the definition of "current value" is "essentially the position taken by the regional assessment commissioners in their interpretation of market value under the existing act."
What the experts are saying is clear. It would make much more sense to just leave the words "market value" in the act. Then taxpayers would understand more clearly what they are dealing with.
This brings me to my second point. Why is market value assessment being disguised? Because one of the two ministers responsible for this bill made a solemn commitment in June 1995, and he said his party would never impose market value assessment on Toronto. This is a commitment that cannot be escaped with an alias. This flyer went around to all the homes in his riding.
Let me be clear on this point. This is not an issue on which the minister's platform was silent. Nor is it an issue of something he said he would do, then did not do. That type of commitment might still be met later on. What we have here is a clear and precise commitment not to impose market value assessment and that is what the minister is doing with this bill.
Members of the committee, the government has no mandate to implement this bill. To impose market value assessment it would have to run on a platform promising market value assessment. I don't believe the government would do that, but if it really wants MVA province-wide, that is what it must do.
I believe Ontario taxpayers want an assessment system other than market value assessment. Two thirds of Ontario's population live in communities that have not kept market value up to date under the local option system, and that is an indication of how Ontario taxpayers feel about market value assessment.
The city of Barrie just recently opted out of a reassessment from 1984. Guess why? They didn't want to go through the agony of another dislocation and the trauma that the 1984 reassessment imposed.
If you read our material, you'll learn how other countries and states have developed alternatives to market value assessment, alternatives that work and that taxpayers see as equitable. Neither Anne Golden nor David Crombie was given enough time to examine these alternatives in depth.
Given that the Ontario government has to wait for a new mandate anyway, it might as well give us the in-depth look at alternatives we haven't had to date. Once that happens, the government might learn that its original instincts were correct.
Market value assessment is a malignant tax system with fatal consequences for its authors; 78% of taxpayers in the city of Toronto formally rejected market value assessment in a legal referendum in 1991 and would reject this if given the choice. Al Leach knows that. That's why he made this promise. That's why Isabel Bassett made a similar promise. That's why other MPPs made a similar promise. Al Leach was right in June 1995 to promise that to the taxpayers. The committee should urge him to reaffirm his promise to those same taxpayers. To do otherwise is just plain crazy, in my opinion.
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Mr George Milbrandt: I'd like to spend a couple of minutes talking about two other aspects of the present bill. One of the considerations is inaccurate assessments. I believe they will result from the present time period allocated for assessments. Four million properties have to be reassessed. The process has already started. A member of the ministry staff said the ministry could not perform the assessments adequately in the period of time given.
A bid was released allowing for a $62-million budget to outsource some of this assessing. Several people looked at it, but nobody in the end took an opportunity to take some of this money. I can't tell what their motives were, but probably they felt that given the time constraints and given the budget allocation, they could not do an accurate assessment in the limited period of time.
Accurate assessments will impose great difficulties, especially on large urban areas. The city of Winnipeg very recently went through a situation where it lost $54 million in tax revenue because of inaccurate assessments. If you scale that up to Ontario's larger population, this could be as much as $800 million.
Early on, before the names were changed, when the government was talking about actual value assessment, they touted the British Columbia experience as something they wanted to emulate. The British Columbia experience took over 20 years to develop the system of assessing, with accurate assessments and then continual updates. Even with that they've had extreme volatility out there. It's been extremely harmful to small business, as well as to residential taxpayers. They've tried three-year rolling averages. Everything they've tried to mitigate the volatility of the system hasn't worked to date.
Here we're attempting to implement a system with poor assessments and it's just a call for disaster. As more measures and responsibilities are shifted to local municipalities, they have to rely on a solid source of revenue. If you implement a system that's flawed by poor assessments, as I believe market value will be under the present time lines, you're courting disaster.
There are two other things I'd like to mention. One is tax policy. A lot of this has been left to future regulation. Without municipalities knowing what the tax policy is going to be, it's very difficult for them to look ahead and to plan and to budget. That's one of the problems Bill 106 opens for us.
Related to that is the elimination of the business occupancy tax. The previous speakers talked about that. A large amount of money is involved. It is $1.6 billion provide-wide. In Metro Toronto the figure is -- I don't have it right at my fingertips, but it's a substantial amount of money, I think close to $500 million. This revenue has to be replaced somehow and this means shifting tax either within class or between classes, and without the regulations to know what is and isn't permitted, that's a very difficult task. That's one of the problems.
Related to strip retail, which is very prevalent in the city of Toronto and other urban areas -- where you have very dense populations you have small stores along major arteries -- under the proposed Bill 106, the tax increases will be devastating for retail strips. If you have a local council that has the ability to set some tax policy to balance this against the commercial in a downtown core like Toronto, you're able to balance the two and not drive small business out of business.
Without that, cities like Toronto and their strip retail are going to face tremendous problems, more so because the bill suggests regional governments have the responsibility for setting tax policy. In a regional situation where you have suburban, which have different needs than cities, they compete against each other in a situation where the votes in the suburban area outweigh; it's just not something that will be important to them.
You'll end up with a situation where your older municipalities that have the strip shopping -- East York, York, Toronto, Ottawa, Windsor -- will have tremendous problems through the lack of tax policy they can set at the local level to deal with problems small business will suffer as a result of the market value, because there will be tremendous tax increases as a result of that.
I didn't realize I was going to be asked to copresent with Michael and I've given a separate brief to the clerk so it's available to members of the committee. I've tried to link the importance of considering tax policy, whether it be market value or whatever, along with revenues municipalities need, including revenues for education purposes and the importance of doing that.
It has to be looked at not separately but as one package. To separate financing of education from the financing of other municipal services and other municipal responsibilities is just not realistic. So I've included some comments in a brief that was given to the secretary about linking two of those items together.
Finally, I would say that at a conference last fall, we heard a number of speakers from literally around the world -- Israel, United Kingdom, California, British Columbia -- talking about, first of all, shortcomings in the case of the BC actual value assessment, and viable alternatives to the actual or market or current value, whatever term you want to give it. I've tried to indicate some of those as part of the brief.
It seems to me that what you as a committee should do is recommend, first of all, the withdrawal of Bill 106. It's just too flawed and there are too many uncertainties. You should develop a menu of acceptable alternatives, including market value, but also unit assessment, acquisition value and allow our local councils to choose between provincially accepted assessment systems. In so doing, a council could well decide that market value, rental value, are quite appropriate for commercial-industrial, but something like a unit system is very appropriate for residential properties. In my brief I've outlined pros and cons of market value and the pros of the unit system, if you're interested.
Basically, that would draw it to a conclusion: Withdraw Bill 106, develop a database that can be used for any system that you or municipalities could decide to implement, and redesign the tax policy component to take into consideration a lot of the unanswered questions regarding tax policy.
The Chair: Thank you very much. You've used almost the complete time. We perhaps would have one minute for either a brief question or a comment from each party. We could begin with the government.
Mr Hudak: I just wanted to make sure that some things were clear on this bill, and especially the difference between what this bill proposes and the MVA approach that was, I understand, rejected by the city of Toronto some time ago.
I think what this bill does is adjust and make up for those difficulties in terms of an eight-year phase-in period, for example, and deferred tax increases for low-income seniors, low-income individuals. It also uses a three-year rolling average to offer greater stability to property taxpayers and uses multiple property tax classes to better address different property types.
You also made a comment about the private sector appraisers. My understanding of their role is to be in the field, to inspect property and to record what is there, but they're not making judgements on the value of property; that's being left up to the government's assessors, to judge that value. So I think, and I think many members on this side agree, this system does make a lot of sense. Certainly, if you're not from Toronto, and not knowing a great deal of history, it seems to me fair that a house of a certain value, whether it's in Rosedale or some other part of the city, should pay the same level of taxes.
This argument that somehow it has to do with the size of the property and how much that takes in water and sewer I think leaves out a vast realm of services in the municipal taxes now, like the health board, for example, like welfare, social services, children's aid etc. We can't lose sight of that. There has been for some time, and I think there will continue to be, a redistributive element in the property tax. I think that's recognized by the value. To argue that it should be based on the size of property or the size of the house is just a panacea to avoid paying a fair share of taxes by the people of Toronto and it should be throughout the area.
The Chair: Thank you for that comment. Mr Phillips.
Mr Milbrandt: Could I respond to that comment? No, I'm not allowed to? Sorry.
Mr Phillips: This is market value assessment. You'd need a forensic expert to tell the difference between this and market value assessment. It is, without question. In fact, the government itself says, "Don't worry because there's already been market value assessment done in the rest of the province so there'll be very little change." Any briefings we've had from the government say that this is market value assessment.
The government should just be honest with people and say, "We've looked at all the alternatives and we're going to put in market value assessment." To try and say this is different you lose all credibility out there. No one will believe you. If you try and argue, "No, we're not bringing in market value assessment," you look foolish."
I think the government simply has to acknowledge that you're doing it. That's what you're going to do. It's trying to tell the difference between two Chevrolets, that they're totally different cars because one's black and one's dark blue. This is market value assessment. If any of the government members want to go out and debate publicly that it isn't, they're going to have some real problems.
Do we have any time for questions?
The Chair: We're really out of time.
Mr Phillips: It's unfortunate because these are very thoughtful briefs that I wish we --
Mr Walker: On the comments that were made, those were all dealt with in the earlier proposals; there's nothing new in this. It's just market value assessment by another name. We call it a new alias.
The Chair: Mr Pouliot, you have one minute. I know it will be challenge.
Mr Pouliot: Even with the best of DNA evidence you couldn't come up with any. This is so thinly veiled and I'll tell you why. It's called a spin. During the campaign the policy of the PC Party has always been, "We will never impose market value assessment on Toronto." Everybody knows what everybody knows. MVA, AVA. If it looks like MVA, it is. If it walks like it -- let's be honest about it. Nobody can decipher for it anyway. Let's not be hypocritical. I think personally the minister should resign.
Then he goes on to say -- get this gem here: "The PC alternative," and, "Stopping the downloading...on municipalities." That's what they said during the campaign. Are you with me, Ms Bassett? Your name is on this. "Stopping the downloading," that's all I hear from my constituents from all over the province, downloading.
By way of a question, I want to know, out of the city of Toronto, I get a feeling reading the media that you're being abandoned. You are being milked big time. You will be the victim of downloading of unprecedented proportions. Some of your educational levy will be siphoned off. It will go straight into the big vac there, the general fund, and then el presidente will start doling it out bit by bit, but you're not going to get your share back. Do you feel you're going to end up a bit like Montreal was in its association with the Quebec government? Do you think the analogy is valid?
Mr Walker: We were considering that we're maybe more like Beirut or Cleveland.
The long and the short of it is that this tax reform proposal is going to hurt the whole province, but it's certainly going to hurt the city of Toronto.
The Chair: Thank you very much. We appreciate your presentation to the committee today.
This committee stands in recess until 2 pm this afternoon.
The committee recessed from 1205 to 1400.
GAY BELL
The Chair: Welcome back from lunch. Our first deputation is Ms Gay Bell. Welcome.
Ms Gay Bell: Because these are my students and they're just learning English, it is easier if they can see my mouth. Would it be possible for me to sit over here? With my back to them, it will be difficult.
The Chair: That would be fine, with the permission of the opposition and the third party.
Mr Pouliot: No problem with unanimous consent.
Ms Bell: Thank you. My name is Gay Bell. I am an English-as-a-second-language teacher. I invited my students and my colleague and her students here today to see democracy in action.
This is my colleague Eileen and students Hieng, Li and Connie and Su and Hai and Ngan.
One of my students, Lang, worked in Canada for eight years before she was laid off. She could not speak English for those eight years in the factory. Now she comes to class every single day to study English. She has two children who are working and putting themselves through school. She is living on a low income. Her family cannot afford a rent increase.
Xue Ying, Hai and Su are retired. They live on low incomes. They said that the problem is that the government is cutting seniors' money at the same time as their rents are going up, so they cannot afford to pay more rent.
Another student, Raqia, has a husband who is sick at home with diabetes. He needs injections every two hours. She cannot be away from him or her children for very long. Since our classroom is right beside her home, she can come to class, but she can't go out to work. She herself has severe back pains and so working would be difficult for her. The family is on a very limited income and would not be able to pay more rent.
Su worked in a factory for five years. She has three children in school and one more is working. Two of her children are in university. They borrowed money from OSAP, the Ontario student assistance plan, but they don't have money to pay a higher rent.
You can see for yourselves that these are decent people who worked hard and who take their responsibilities seriously as parents. They deserve to be treated fairly. Last Saturday's Star quoted a recent Angus Reid pollster who said, "When we asked people what was the main responsibility of government," you know what the top answer was? "To take care of us."
Taxes are a key part of democracy. If taxation is fair, then a country has a better chance of being democratic.
The Toronto Star article about Bill 106 said that about 20% of properties would get an increase of up to 40% on their property taxes. This is clearly an impossible increase for my students to pay.
Property taxes should not be linked to ability to pay. That's the purpose of income taxes. Property taxes should not be used to fund social programs. That would drive wedges between people. People would blame the poor for their increased property taxes, and people who have the money will move out of the downtown core, which will mean that the city will be left without those who have enough resources to advocate for decent services.
Another problem with Bill 106 is that it will scrap the business occupancy tax. Supposedly that will help businesses, but the question is, which businesses will benefit?
I spoke to my hairdresser about that. He has a small salon on College Street. He said he will be badly affected by the increase in property taxes. He already pays about $7,000 in property taxes, so a 40% increase would be a lot more for him to pay. But he only pays about $1,200 in business occupancy tax, because it's based on a square footage and he has a small place. Consequently, although he may save $1,000 on the business tax, he'll have to pay $3,000 more in property tax.
But he said the hotels are the ones who pay a lot of property tax, because they pay by square footage multiplied by the number of floors in the hotel and increased by the high-use desirability of the site. If we scrap the business tax, it means that international corporations, the owners of these big hotels, will save money, and our own local small business people will still have to pay high property taxes.
Finally, if we increase any kind of taxes on working people or poor people, we have to increase their ability to pay the taxes. In other words, people can't pay more unless they get more work. But all across Toronto and the boroughs, students are looking at a loss of adult English classes through Bill 104. If they can't learn English, it will be practically impossible for them to find work and make the money to pay higher taxes. Consequently, I strongly recommend that both Bill 106 and 104 be withdrawn.
The Chair: Thank you very much. That leaves us about four minutes per caucus for questions, and we'll start with the Liberal caucus.
Mr Monte Kwinter (Wilson Heights): Thanks for your presentation. You have really touched on an issue that I've been hearing a great deal about, and that is taxes based on your ability to pay rather than the value.
It's interesting that in statements at both first and second reading the Minister of Finance said that what is really happening is that too many people are paying too much tax and this is going to be fairer. He didn't say that there are lots of people who are paying too little tax and are going to have to pay a lot more. That is going to impact on exactly the people you're referring to in your statement. Do you have actual cases of what those changes are going to mean for the people you're here representing?
Ms Bell: It's difficult to project what will happen without more concrete information than I was able to obtain. I'm just working from newspaper articles. But I would be happy to try and pull the cases together, because certainly within our ESL community there are lots and lots of students in similar situations.
Mr Kwinter: Yesterday the minister admitted that with the removal of the business occupancy tax, it was possible that property taxes will be going up. That of course begs the question, who is it you're trying to benefit? Are you trying to benefit the taxpayer? Are you trying to benefit the businesses? I'm certainly an advocate of making businesses as competitive as we can, but at what cost? We have to make sure you're not benefitting one sector of society and really creating severe problems for another sector.
Ms Bell: I agree with you. That's right.
Mr Kwinter: These students of yours are people who are adjusting to a new society, trying to learn the language, trying to make their way in a new country. It would seem to me that the government should be doing all it can to ease their way, as opposed to putting these impediments in front of them, so they don't have these problems.
I was reading in a publication just the other day that in Vancouver, which has had a disproportionate, I would say, share of immigrants, particularly from Hong Kong and China, there are thousands of people leaving and going back. They have found that their taxes have been going up and their costs of adjusting into the society are beyond their reach. While they thought they were coming to a land of opportunity and a land where they could do things, they find that the reality does not match what they thought the opportunity was, and they're now going back. Have you found that happening in Toronto at all?
Ms Bell: I think that depends on the income level. It's difficult for people who have a very low income even to get plane fare, let alone relocate back to their countries. But they certainly do express that sentiment, yes.
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Mr Pouliot: Thank you very kindly. For me too English is a second language, and you will forgive me if I'm a little hesitant from time to time for exactly that reason. I have to work doubly hard at the language of the majority.
Your presentation brought out what it's all about: the human dimension, people. I sense in your presentation, and I don't wish to be too harsh, that people could be from time to time insecure, frightened maybe, not knowing that the government will take care of us. If I were to ask people candidly -- I'm not the one saying this; I've heard it said by others -- if they feel that the present government is mean, that if you don't have much money, if you're not quite rich, then this is your fault because you have all these opportunities -- you see, this bill is a bill that will benefit the banks. The bank towers will be paying less money. We all know that the banks have done quite well. They've done well with the rich, with themselves, but they've done well with the poor too. We all know that if we don't have a bank account, we cannot exist in this country.
I say this by way of observation, but more important, perhaps, with the permission of the Chair, someone could tell us their personal circumstances. When all is said and done at the end of the day, if we don't reach an equilibrium, it's people like yourselves who suffer, and we're all on a waiting list of sorts, be it by virtue of health or by being elderly. If you don't say, "Enough; you cannot do this," well, nobody else will. You have said that by being here today, so I thank you very kindly.
Ms Bassett: Welcome, Ms Bell and students. I'm delighted you're learning English, and good luck to you.
I know you haven't had access to the whole bill to read it, but I wanted to point out a message you could maybe take back to your hairdresser, because you said he or she might be worried about the business tax going up.
The business occupancy tax -- I think all three parties have agreed they want to get rid of it -- was brought in in 1904, when in this country, ladies, if you understand, we used to drive horses and buggies. That's when this tax came in, not a time for us to be copying. It's outdated, obviously. There are five arbitrary rates, and there's no logic to how you charge on businesses, so a bakery could be charged a 30% tax rate on its assessment and something else would be charged far more. Maybe the hairdresser is paying far more. There is no way to explain.
We're trying to bring in a system that you can understand clearly, and the municipalities are going to have the choice to say that over a certain level they're able to create a two-tier system so that they can take the big companies -- I don't like to name any but "bank" seems to be coming to mind these days -- they could take banks and then they could take your hairdresser and the local cigar store or grocery store and they could put different taxes on those two tiers. That way they will be able to encourage small businesses, that are of course the heart of this country, and allow them to stay in business.
That is the municipality's responsibility and they've wanted that in order to support and protect small businesses that they count on so much. So I hope, Ms Bell, you'll take it back to your hairdresser you were talking about and your other small business people with whom you deal.
Mr Hudak: I want to follow up with the deputant. Did you say that municipal taxation should not be related to an individual's income or their ability to pay? Did I catch that correctly?
Ms Bell: I said that, yes, income tax should be related to a person's income, but property taxes should not.
Mr Hudak: But we've had that component for some time and municipalities, especially in Toronto, already pay for a lot of the social services that are also funded by income tax, like health, welfare, social services, children's aid, all of these things. These items for redistribution are helping those who come from the lower-income families.
So I'm puzzled. If it's okay for the income tax, if the municipal property tax is paying for these services as well, then why shouldn't somebody in a nice home in Rosedale pay their fair share to help out people who need these services? Why should they be paying what many would describe as not a fair share? Why would you want property tax to be a regressive tax, especially when for many years it's been driving businesses out of this city into the suburbs, bringing forth people today who are looking for jobs and, just because we want to subsidize the homes in Rosedale, for example, chasing jobs out of Toronto? So I'm puzzled. If municipalities do have these social services, why would you make property tax a regressive tax?
Ms Bell: I can't follow you as fast as you're going, but it seems to me that it makes more sense. If you look at the whole issue of income tax, some of the problems are that people who have high incomes can afford all kinds of legal loopholes and so on to get out of paying their fair share in the first place.
Mr Hudak: If they have these nice homes, why shouldn't they pay their fair share of taxes too, instead of proposing things like unit assessment and these other kind of loopholes? Why do you want to create loopholes for taxpayers who live in large houses in Toronto? Shouldn't they pay? Obviously, you're against the loopholes; they should pay their fair share. Why shouldn't they pay their fair share for municipal services too?
If you believe that the wealthy should pay a significant portion of health care and education and such, because you support progressivity in the income tax, if the municipal tax also pays for health care and day care and education in some ways, and children's aid, why shouldn't that also be a progressive tax? Why are we letting the wealthy homeowners off?
The Chair: I think our time has expired. Thank you very much, Ms Bell, for attending the committee and making your presentation. I hope your students found it enlightening.
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AL SABLATNIG
The Chair: We now welcome Al Sablatnig. Welcome to the committee.
Mr Al Sablatnig: Honourable minister, members, thank you for the opportunity to appear before you and to inform you of my experience with the assessment process and share with you my views as to one section of Bill 106.
My name is Al Sablatnig and I have managed apartment buildings for the last 10 years. For the last six years, I have been involved in property tax appeals. You may say that I have been working with the system, so I can give you a little bit of an insider's view of how the system works.
I'm specifically addressing section 28 of Bill 106, which will repeal section 43 of the Assessment Act. It relates to the appeal provision for disputes relating to assessments by eliminating the appeal to the Ontario Municipal Board. I appeal to you as members providing input to this piece of legislation not to repeal section 43 of the Assessment Act. I ask you not to repeal and eliminate the appeal to the Ontario Municipal Board.
I have three reasons for that. I believe the elimination of an appeal to the Ontario Municipal Board would result in a gross miscarriage of justice in Ontario. It would result in increasing further presently rather unfair and arbitrary public administration practices. I'll provide you with some examples later on. I have far more if you are interested in more details than I have here today.
I believe that perhaps the appeal procedures should be strengthened rather than weakened, and perhaps assessment officers who carry out unfair, malicious assessments should be held personally liable.
Part of the problem is really the assessment process of market value assessment. It does not have rational or measurable criteria. I believe you should be aware that Ontario, some provinces in Canada and some states in the United States are the only countries that use that approach. Other countries in the world don't use market value assessment at all. They are subjective judgements and there's a very high degree of error involved. It's also an extremely expensive system to operate. Germany uses a unit-based system for a population of 90 million; they have 60 people to administer it. For 12 million people, we have about 4,000 in Ontario.
One of the consequences of market value assessment is that it's a gradual devaluation of your property. You penalize the conscientious property owner and you reward the slum landlord, so to speak. If you want to see the act in action, I invite you to come to Brantford where you can see the physical devastation which has taken place over the last 50 years; Toronto, in some areas, is also an example.
My primary concern -- it's my third reason -- is actually the unusually high degree of arbitrary judgements, and I would go so far as to state that the staff implied by the Ministry of Finance is really unable to carry out fair and good assessments. This may be a strong statement to make, but I'll give you three examples.
The first example deals with apartment buildings in Brantford in 1992 and 1994. It applies also to 1996-97. The second example I have is a residential neighbourhood in north Toronto. I'll analyse it. The third one is an industrial area in Milton.
My write-up provides you with some text, but can I take you to example number one on the next page, which is a statistical summary of approximately 50 apartment buildings assessed and analysed. The block, which has some figures to the right-hand side, are apartment buildings under the rent regulation act. You have the address, the number of units, the assessment. You have the assessed revenue. The process to assess the revenue is an estimate of the revenue which is done by the assessment office.
I have taken the maximum legal rent applicable in 1980, the same year the assessment base has been established, and compared it. On the right-hand side, you see a column of percentage figures. What I find very surprising, and everyone in the province knows that you cannot charge more than 100% of your maximum legal rent, is that the assessment office assesses practically half of all the apartment buildings in Brantford between 100% and 130% of the maximum legal rent. I want to point out to you we had to appeal this decision to the Ontario Municipal Board and it cost our company about $35,000 to get this appeal processed.
I have highlighted two apartment buildings in dark colour, one at 109% and the other one at 82%. These are two apartment buildings, side by side, same quality. Why is one at 82%? Why is the other one at 109%? We cannot get an explanation from the assessment officers.
I also want to point out the error range. In percentage countings, 52%; on a percentage calculation basis, 161%. That's a very high ratio of error, in my opinion. What I find particularly upsetting is that the information about maximum legal rent is available in the assessment office on their computers. It is public information; everyone has access, including the assessment office.
May I take you to example 2: Residential neighbourhood in north Toronto. On houses, we don't have maximum legal rents to compare so the preferred method by the assessment office is to establish a ratio and compare the assessment with the so-called market value. The assessment is a subjective figure, the same as with the market value. You find the range of assessment to market value ratio in the right-hand column of the upper block of example 2 on page 1.
I have introduced, for analysis purposes, one of the rational criteria -- that's the square footage of each house -- and I used this in a lower block to present it to you. One of the things I want to point out is the column with the S's in there. This is senior citizens. On a market value assessment, it would appear to be all in the lower range; it means their assessment should go up. But if I look at the so-called assessment, the square foot ratio, all the senior citizens are assessed high. They are ranging between 60% and 87%, whichever you pick.
I'd like to take you now to page 2. Particularly, I want to get Mr Tim Hudak's attention here because the example he used on Rosedale before -- I want to bring something to your attention which is on page 3 here. I compared two streets, side by side, same neighbourhood. One is medium-sized houses; the other one is large houses.
If I use the assessment office ratio of assessment to market value, which is iffy under the best of conditions, I get a comparison ratio. Let me point this out first: The upper part is medium-sized houses, the lower part of page 2 is larger houses. Again, you have the assessment, the square footage and market value as the primary figures and then analysis columns on the right-hand side. The second-to-last column is the assessment to market value ratio on one side, which is used by the ministry. At the bottom you can see that it looks like the larger houses are assessed 13% higher than the medium ones.
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If I analyse the same data based on square footage, which is the right-hand column, the medium-sized houses, on average, have a market value of 311 per square foot while the large houses only have a medium value of 227. That means the larger houses in Toronto, through the market value assessment process, are generally undervalued by 20% to 30%.
So when the honourable Mr Hudak suggested that the larger ones, the richer ones should pay, they are not paying their fair shares. Smaller houses are taxed far higher in Toronto than larger ones. I believe the data here suggest very clearly that the average assessment of the larger one, on this particular block on the street of 14,500, refers to 4,000 square feet of housing. This is a concern. You may have some questions for me later on; there's no doubt about it.
The third example I have for you -- I don't have any specific date here -- is an industrial building in Milton which was built in 1987 for $143,000. The assessed market value on this building at the present time is $1.3 million. I don't know why.
Ladies and gentlemen, we need the appeal process. By eliminating the appeal to the Ontario Municipal Board, these things could not be appealed, because the Assessment Review Board has been proven useless in dealing with appeals. I appeal to you: Please do not repeal section 43 of the Assessment Act.
You may have questions.
Mr Pouliot: Thank you very kindly. I too share your concern vis-à-vis the elimination of the appeal process. I know you cannot say, but I can say, dealing every day with the present government, that this is part of the exercise that's taking place -- it's one more every day. You see, sir, accountants and appeals get in the way and slow things down. This is action directe. "You do as we say you will and that's the way things are, for your own good, whether you like it or not."
You've mentioned throughout your presentation market value assessment. They would have us believe that this is not market value assessment, that this is actual value assessment. Under the finest of microscopes, no one can decipher. When you talk about the intent and spirit, it's pretty well the same thing. It means the same thing: You're going to be reassessed.
I want your comments on the following: Some of the fine examples show that it is not totally consistent. In the next 11 months, they will assess and reassess 3.8 million units and they won't give the large portion to the professional assessors. It will be done by people who will do some training on the job. It is expected that upward of 900,000 will appeal their assessment. What are your views when you see the kind of catastrophe that is about to unfold in front of us? If we think this job is bad, what do you think the next job will be like?
Mr Sablatnig: It will be a horror story. I believe the city of Toronto has made presentations to carry out assessments based on unit -- that means area -- on an experimental basis. The city of Toronto can implement this within two or three months without additional expense. We don't have to go out and -- I can give you statistics on the comparisons between assessments based on area versus based on value.
I should also perhaps draw your attention to how market value is established. If one goes and buys a house, generally houses are financed. One goes to a financial institution and borrows money. The amount of money borrowed is determined on the personal credit rating. It has nothing to do with market. The example I have is that when a European bank president was transferred into the city, we were paying 12% interest. He got benefits of 6%. He felt that the 20% higher price, compared to Europe, was a deal and he went ahead with the price. Is this a market price when he pays 6% while we have to pay 12%?
I have some very serious concerns about the whole concept of market values, because they are not, there is no such thing.
Mr Joseph Spina (Brampton North): Thank you, Mr Sablatnig, for something that appears to be very, very well researched. Seeing as how your position has to do with property management -- did I catch that?
Mr Sablatnig: Yes.
Mr Spina: You obviously have some insight into it. But there are a couple of elements that we wanted to clarify with you, and I know my associate Mr Hudak wants to talk you about that.
The one element was the appeal process that you referred to. First of all, I wanted to clarify something, that section 43 is not being repealed; it is being amended. What we are trying to do, Al, is to simplify that appeal process. Right now, as you know, you go through an Assessment Review Board and then it ends up at the OMB.
Let me clarify that: First of all, right now there is $100 million being lost a year by the Metro Toronto municipalities as a result of that appeal process. That is already on record and clearly has been analysed and pointed out. How do we rectify both the lost revenue for a municipality that perhaps they could be entitled to -- I didn't say "should" -- and how do we address the matter of fairness, which you so eloquently really are striving to achieve, just as we are?
In our opinion, on the first element, which is the appeal process that I spoke about, we are trying to simplify it with the Assessment Review Board. The court of law is still available on matters of law once that ARB process is completed. You see, there is still a process for the homeowner to follow through on their appeal.
The important factor is that under this new process we are simplifying it. In the past there was a 30-day time limit just to get to the hearing, but we have put a 90-day time limit on the entire process, because once you go to a review board and then you're going to the OMB, that could take as much as one or two years. I'm sure you either have experienced it personally or are aware of people who have experienced that. We've put a 90-day limit. We feel it is only fair for the taxpayer to know what their status is as soon as possible, whether it's a residential homeowner, whether it is a business or whether, on the other hand, it's the municipality itself.
I just wanted to address that. I'm going to defer to my associate on the inequity.
Mr Sablatnig: Could I briefly comment? Number one, the $100 million lost is not lost. These are misjudgements by your assessment people. Let's get this very clear.
Mr Spina: These numbers came from Toronto, not from our assessment --
Mr Sablatnig: I realize that. As a matter of fact, the city of Toronto last year collected $1.873 million in property taxes. That's simply the city of Toronto. Of that, 54% -- that means $960 million -- had nothing to do with the city. The city budget is only $500 million. The board of education took the largest chunk, $1.056 million, but the Toronto Board of Education got only $584 million back. The money is being exported from the city of Toronto. You have to come to grips with one issue here which has nothing to do with the city itself. We have an unfunded federal program for which the local taxpayer is paying.
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Mr Spina: Unfunded federal program?
Mr Sablatnig: We have an unfunded federal program.
Mr Spina: I'm sorry; I don't understand what you're speaking about.
Mr Sablatnig: We have increased the population in the last 20 years from six million to 12 million. The federal government doesn't pay for housing. The federal government does not pay for places of work. The federal government does not pay for hospitals, roads, infrastructure, subways. We pay it. We have exported from the city of Toronto in excess of $900 million per year to outlying areas. That's the 1952 Metropolitan Toronto Act. The federal government for Canada spent only $700 million on immigration last year; this year it's $600 million. You may advise the federal government what our free capacity is or what our willingness is to pay for federal programs.
Mr Spina: What are you suggesting here then, Mr Sablatnig?
Mr Sablatnig: The Ontario government has a responsibility to advise the federal government what our free capacity is to add additional population.
Mr Spina: Are you suggesting that the federal government ought to be putting more money into subsidizing growth or immigrant housing?
Mr Sablatnig: Either reduce the quantity or find the money to do it.
The Chair: I think we're wandering away from Bill 106.
Mr Sablatnig: You cannot send 200,000 people here and say, "Accommodate them."
Mr Kwinter: Thank you very much for the work you've done. It's very informative and you're to be commended for doing it.
I want to pursue an area you were talking about, and that is the whole review process and the whole idea of people appealing their assessments. The idea that's been floated out, that certainly I just heard one of the government members suggest, is that the city is losing a tremendous amount of money because of these appeals, whereas it's just the reverse. They've been getting the benefit of a huge amount of money that has not been rationally applied.
In my constituency office, when these appeals were coming through, I had constituent after constituent coming to see me and saying: "I just found out my neighbour is paying a lot less taxes than I am. How come?" I said: "That's a good question. I don't know. Go and appeal it." They would go and they would appeal it and invariably they would win. The reason they would win is because somehow or other these assessments were arbitrary. They're judgement calls, but there hasn't been a uniform application of the criteria. I assume by your illustration exactly the same thing is happening with rental buildings, with industrial buildings. Would you like to comment on that?
Mr Sablatnig: Yes, exactly. The only way out of that one is to use rational criteria, like area. You can take a tape measure and measure. Right now, it's a judgement call and it depends which person it is, how honest the person is. My personal experience is more or less the assessment officer's dislike of me personally perhaps or somebody wants to make a career move and he's particularly hardnosed about assessments.
There is at the present time no rational basis for it. If you want to change something in the Assessment Act, I believe it is section 19. It says it should be done on market value. I would like to suggest, if I may, that it should be tried at least on an experimental basis on unit, on area. You wouldn't have any appeals.
By the way, the figure in terms of tax arrears in the city of Toronto is $217 million. It's not $100 million; it's $217 million at the present time in arrears -- more than 10%.
Mr Kwinter: There's a whole other area of concern I have and I'd like to get your comments on that. I know of a particular area just outside my riding where the so-called monster homes are being built. There are people living in very modest little bungalows that were built right after the Second World War, and because of what has happened in the market, where suddenly it is being determined that from a geographic point of view this is a desirable area to live in, because of its proximity to the various amenities that are around, they are building these homes which have driven up the value of these properties. But for the people who are living in those houses and have been living there for maybe 20, 30, 40 years, nothing has happened to enhance that value for them unless they're going to sell. They are then confronted with the problem of being forced to move out of houses that they can no longer afford to live in just because things have changed around them. I think this bill, from what I can tell, although they make some allusions that they want to address it, hasn't effectively addressed that issue.
Mr Sablatnig: That is correct. It has not.
Mr Kwinter: Do you have any suggestions of how it could be addressed?
Mr Sablatnig: Use the European system that is commonly used in Europe.
The Chair: Thank you very much, Mr Sablatnig. We've enjoyed your presentation very much.
PETER MILLIGAN
The Chair: We now welcome Mr Peter Milligan from the firm of Poole Milligan.
Mr Peter Milligan: I'd like to just correct for the record that I am not here on behalf of Poole Milligan today. I'm simply here in my personal capacity as a citizen and as a ratepayer in the GTA.
I'll begin by saying to the committee, and I thank the committee for this opportunity, that I am a homeowner in East York. I am a lawyer. My practice over the last 20-some years has emphasized and is exclusively now within the area of property taxation. I view myself as a property tax practitioner as well as someone who is interested in taxation policy and I thought it important to come today and speak to you.
Among other things, in addition to my practice, I'm a member of a number of associations, including the International Association of Assessing Officers, the Institute of Property Taxation, and I am the executive editor of a publication in Canada which is entitled Focus on Canadian Municipal Assessment and Taxation.
I come here today really as a private citizen to thank this government for taking what I believe are courageous steps finally to deal with a system that some have described as broken but which I would certainly describe as one that lacked sense. The time has come for reform and I believe Bill 106 is the beginning of that reform.
I want to make it very clear that I certainly believe, as a professional and as an individual who has had some experience with property taxation, that this is an opportunity that cannot be passed up at this time. Over the 20 years that I have practised, other governments, including going all the way back to the early Conservative governments, had the opportunity to correct the system. The opportunities were not taken. We found ourselves confronted with serious problems in Ontario and Bill 106 is definitely a positive step.
I really haven't prepared any material today but I'll address an issue that was raised by the previous speaker, which is the appeal process, as it's something that is very close to my heart and that I am very familiar with as a practitioner.
I am fully in support of the streamlining of the process which is indicated by the amendments to the various sections of the Assessment Act. There is no question that back when I started practising there used to be three levels. We used to go to the assessment review court, we then used to go to a county judge who sat as persona designata under the act, and then we ended up at the Ontario Municipal Board, and in each case you basically went back to square one and you started over. Talk about an absolutely irrational and uneconomical process. That was in the 1970s.
We're now in the 1990s and the process is equally irrational and uneconomical from the taxpayer or ratepayer point of view, but also from the assessor's point of view. I'm thinking now, looking downstream at the reality, that the assessment function will become the function of an authority or perhaps a crown corporation and it will no longer be a function of government. In any event, there's a lack of economics and a lack of sense on both sides. So the streamlining of the process, I think, makes great sense.
The concern that was raised previously was the eradication of the Ontario Municipal Board. I don't think that's really going to occur. My understanding is that the recommendations of the Wood task force on agencies and commissions, which were recently released, are that the Assessment Review Board and the Ontario Municipal Board function be combined.
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When I'm looking at Bill 106 now as a professional, I am reading "Assessment Review Board" as basically meaning the quality of the hearing of the Ontario Municipal Board. If that's not the case, then I strongly urge this committee to see that it is the case. But I believe that the quality of the hearing that will occur will be the quality one now has at the Ontario Municipal Board, and if there is an implementation of the recommendation of Mr Wood, then we will have, I think, a kind of one-stop-shopping at a high quality level where there is real accountability and the delivery of natural justice.
That wasn't really in my remarks, but I just listened to the previous comment and, having just recently read the recommendations of Wood, that's how I read it and certainly I would hope this committee would agree with that.
In the few minutes I have, let me just touch on some things that I think bear on ratepayers generally. It is extremely important that this government deal with the matter of interest on overpayments of taxes. This is regardless of whether you're a homeowner or whether you're a commercial interest. It is extremely unfortunate that since the amendments were made in the 1970s that made it permissive that municipalities pay interest and enact bylaws, most municipalities in Ontario do not. They have had a free ride at the expense of ratepayers of all forms. That must end. Just as municipalities are entitled to charge penalty interest for failure to pay tax, they should be required to pay interest on overpayment, and it should be at a fair rate and it should be mandatory in the legislation.
They were given the opportunity when the Association of Municipalities of Ontario made those representations to the last Conservative government and got the amendments they required. It was anticipated they would enact these bylaws, and they were not enacted. So enough's enough. It's time that interest be paid to any ratepayers who overpay their taxes. I think that's just fair and that's common sense.
I also want to talk about the assessing authority. I realize this is not really in Bill 106, but it's implicit that coming down the pipe will be some additional legislation, and it is contemplated that eventually the assessment function will become something other than a government function. If that happens, I strongly urge this committee to ensure that all stakeholders' interests are taken care of in whatever entity is created, whether it is a non-profit corporation or an assessment authority.
The suggestion has been made to me, "This is going to be kind of a municipal game." Given my previous comments on the matter of interest, I frankly am not comfortable with that and I would think common sense again dictates that all interests be at the table of whatever authority will administer the assessment function in this province. In other words, not only will municipal interests be there, the interests of this government in terms of the integrity of the assessment process and the quality of the delivery of that service, but also the ratepayers who will be the taxpayers, because there are two sides to the equation.
Right now we have a kind of triangle. We have assessors, we have municipalities as the tax collectors, of school boards there as well, and we have the taxpayers. I can't imagine having some kind of so-called authority or non-profit or crown corporation with a board which would not have all the interests represented at that table in terms of the decision-making process and the delivery of the service.
Let me talk about some of the specific interests I have. You have already heard from the representative of the Hotel Association of Metropolitan Toronto, and this really bears on why I think, as we move into the future, we need to have all interests at the table in terms of the accountability of the process. Hotels in Metropolitan Toronto have been severely discriminated against for well over 15 years. That has caused significant economic dislocation and it has caused commercial harm to the general good of Ontario. That has to be corrected, and it will be corrected by Bill 106. I've seen the draft regulation which was evidently made available yesterday and I'm very happy to see that hotels will be treated as commercial property.
That is an example of the kinds of things that can happen if there is not a full accountability in terms of the delivery of the assessment function.
Another area where there has been serious harm done to the province has been in the private power production industry. Private hydro-electric power projects basically are on total hold in this province because of certain assessment practices that were changed midstream which have caused great economic harm to that particular industry. Here we are looking at a time now when this industry will begin to compete on a North American grid-wide basis and we have it basically hamstrung. You'll probably hear, if you have not already heard it from the Independent Power Producers' Society of Ontario, that you have individual projects which have been forced into bankruptcy and liquidation because of these policies, again an example of why you need to have all interests at the table in terms of the delivery of the assessment function.
The regulation I saw yesterday has a section that says "farm land," but it doesn't deal with farm land. That's another area where there has been severe dislocation, and that is farm land that is being held pending development for other uses, either industrial or residential subdivision uses. That has become a significant bone of contention. It has caused serious dislocation within the development industry, and I'm sure you will hear representations from them.
Again not getting into the detail of it, I simply indicate that is why you need to have all interests involved and being able to be heard as the matters of tax policy and assessment policy are dealt with by an authority.
Let me talk about one of the specific concerns I have with Bill 106 -- and my concern may be dealt with by the later legislative package which I understand will come down in May or June -- and that is the right of appeal of tenants. It is extremely important in my view that tenants, and I'm thinking particularly now in the commercial context, small retail tenants in shopping centres, commercial strip plazas and elsewhere, have a right to question the value that is being placed on their property for property tax purposes.
Obviously this is an area of uncertainty because we're not yet certain what's going to happen in terms of educational levy, but if the tenants' right of appeal were to evaporate, and if only the owner of the property were in effect to have a right of appeal, in my view it would deprive those tenants of a fundamental right to question the amount of tax payable with respect to their demised premises.
I think all of us are commercially savvy enough to know that when a landlord enters into a relationship with a tenant in a commercial context, normally there is a complete pass-through of all costs, including taxes. Therefore, there's not a very great interest on the part of a landlord to deal with his tenant's interest in that regard.
I think it's extremely important to jealously guard and protect the right of an individual tenant to question whether or not the value, for realty tax purposes of their premises, is correct. You don't want to have a situation where an assessor says to some tenant: "Oh yeah, I've used the wrong fair market rent. Jeez, your assessment value is much too high, but you know, when I did the total for the shopping centre or the plaza, it was low, so I'm not going to do anything for you." That's incredibly unfair. I think we have to look in terms of this legislation and the fleshing out, perhaps in the next package, of an assurance that tenants will have a right of appeal.
Finally, I would comment that I am concerned about the phase-in concepts and the phase-in provisions. Obviously phase-ins may deal to some degree with the question that was raised I believe by Mr Kwinter. That might be an answer to the homeowner you were talking about, where the municipality will phase in over up to eight years the increase in the burden. Of course, eight years is an awfully long period of time, when someone can say, "Well, what am I going to do with a property that was once worth $100,000 that now as a lot for a monster home is worth $1 million"? On the other hand, the phase-ins can have a very deleterious effect on other types of properties. I'll use the example of the hotels. If you were to phase-in, based on their current levels of taxation in 1996, over eight years to get them to where they should be, that would be absolutely disastrous and totally economically unacceptable. So I have concerns there as well.
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I know I've spoken more than 10 minutes already and I could probably speak a lot more, but I think I'll leave it there. Thank you very much. I want to again congratulate this government on its courage in coming forward, because I know, at the end of the day, that none of the money that has been collected for realty and business tax ends up in general revenues of this province. It goes to the municipalities. The previous governments and this government have been the custodian of the function, and I think it takes courage to deal with something when you know it's going to create the kind of firestorm that it appears to have created in this province. Anyway, stay the course.
The Chair: Thank you very much. I think that leaves us with about two minutes each for questions. We'll start with the government side. Are there any statements or questions?
Ms Bassett: I would like to thank Mr Milligan for his compliments on what we're doing and his urging us to stay the course. I wonder if you could just, for the record, say why you think it's a much fairer plan.
Mr Milligan: I'm a very firm believer in market value properly administered, and one of the things I have always taken to heart in my practice is that a taxpayer should pay their fair share; no more, no less. A market value system, or actual value or whatever you want to call it, if you look around North America and you look around most of Europe, if you look around most of the world, a market value system, properly administered and kept current, is a good measure of value for the delivery of taxation at the local level.
Mr Kwinter: Thank you very much, Mr Milligan, for your presentation. I just want to make an observation. In the 1970s, not only were there three levels, there were four levels, because you could always appeal the OMB to the cabinet. That created another level.
Mr Milligan: You also have the appeal, as was pointed out in the previous comments, to the law courts, and we still have that. That right is fully preserved as a result of the amendments that Bill 106 makes to the Assessment Act. So we'll still have of course the right for, in effect, a judicial review on a matter of law of decisions taken by the Ontario Municipal Board.
But what I think is important is that once you go there and once people take the time -- and I'm thinking now of my neighbours in East York who have appealed their assessments individually, and some of them have come to me and said: "Gee, what do I do? How do I go about this?" They go to the Assessment Review Board, they get a result, and all of a sudden they now are involved in an Ontario Municipal Board hearing and they have to do it all again. At least this is one-stop shopping, and I think that makes a lot of sense.
I think it's important that the Wood recommendations be acted on quickly in terms of their implementation. If this bill passes and we have a reassessment of this province in 1998, I realize there are some transition issues that have to be addressed, but when we're looking at the review of those new values and those new assessments, I think it's important that we be dealing with, in effect, the combined Ontario Municipal Board/Assessment Review Board as contemplated by Wood.
Mr Kwinter: Could I just have a brief explanation? When you talk about this interest on overpayment, I assume that's when you appeal. There isn't an overpayment if you're --
Mr Milligan: It's after the decision. Back in the 1970s, after you got through at the Assessment Review Board, there was nothing in the act that said that you shouldn't get your refund at that point, so the practice was that municipalities would make refunds at that point. The Association of Municipalities of Ontario successfully lobbied the then-government to make amendments to the Municipal Interest and Discount Rates Act and to the Assessment Act to say that basically nothing would happen, nothing was finalized, until all appeals were complete. As part of that, there was the amendment to the rates and discounts act that said municipalities may enact bylaws to pay interest. So the municipalities got what they wanted, which was that they didn't want to have to pay the money until it had gone through the OMB. Their argument was they were losing business taxes. Companies or businesses would be successful, would get a refund, then go out of business and they'd never get the money back. So all right, it makes sense. That doesn't bother me. But the government of the day said: "All right, that's fair, but pay interest and we'll make it permissive. You may enact bylaws."
Well, guess what? I think at the present time nine or 10 municipalities out of over 600 are paying any interest, and the rates that they're paying are absolutely ridiculous, so it's a usurious exercise.
Once you collect the tax, Mr Kwinter, then in my view -- if I give you $100 and I should have only given you $80, and you've had $20 of my money and you use it for five years, then I think I'm entitled to have an accounting from you as to that $20, at whatever the current rate of interest.
By the way, the municipalities charge penalty interest and they should basically be mirrored, in my view. In other words, if they're prepared to charge penalty interest for non-payment, then they should be prepared to pay it when they've overcharged. If we have an assessing authority in this province where the municipalities are stakeholders on the board of directors or whatever it is, then they can make sure that the assessment function is being delivered in a quality way that the chance of their being overassessed and overtaxed is minimized.
The Chair: Thank you very much, Mr Milligan. We appreciate your presentation before us today.
LAWRENCE PARK RATEPAYERS' ASSOCIATION
The Chair: We now welcome the Lawrence Park Ratepayers' Association. Mr Teichman, welcome to the standing committee on finance and economic affairs.
Mr George Teichman: There is a certain set-up time here. I was up until 3 this morning preparing this, so I hope it comes off all right. I haven't checked the English sentence structure too carefully, actually.
Thank you, Chair and members of the committee, for the opportunity to speak. I am a director and past president of Lawrence Park Ratepayers' Association, and come to you today representing that association.
I also come to you with some experience in the area of assessment, since I have worked in urban planning and development and real estate management for the past 30 years. I am the principal shareholder of Upper Yonge Properties Ltd. and Glencairn Properties, which in turn own small strip plazas, industrial malls and residential properties, inside and outside of Metro Toronto.
The community which I call home is North Toronto, that part of Toronto which Fortune magazine last November rated as the best city in the world in which to live and work.
The concern of Lawrence Park Ratepayers' Association is that current value assessment, the method proposed in Bill 106 for taxing real property, will endanger the economic health of our city. First, however, it is necessary for us to establish that current value assessment, CVA, is essentially the same as market value assessment, MVA. The definition of the new term in this bill is essentially the same as section 19(2) of the existing Assessment Act, except that it underscores that valuation should be based on the "fee simple," which of course all appraisals address anyway if a property happens to be encumbered. So it wasn't really necessary to make that definition. Let's talk about CVA and MVA interchangeably, therefore.
Second, we want to make it clear that we also would like improvements to the existing method of assessing property, but to move to a market-value-based method would be unfair and does not make sense. We believe that the Conservative Party understood this when north and central Toronto voted the Conservatives in during the last provincial election. We were interested in two things that were talked about: reduce the deficit and lay off any introduction of MVA, as the NDP government did. So we were assured by promises and letters, such as the one from Al Leach which is attached to my submission. I'll give you a little time to look at it.
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Al Leach writes to Moore Park and Rosedale homeowners, "My party and I will never support the imposition of MVA in Metro Toronto." Also attached is a member of this committee's election flyer, Isabel Bassett. In it, Isabel writes: "The policy of the PC party has always been that we will never impose market value assessment on Toronto. We remain firm in that position."
When I asked Al Leach about this during a packed meeting in February, he tried to duck it by saying that actual value assessment, which was the terminology then, is different from market value assessment. Well, we in north and central Toronto are not naïve, and we are angry. We know that CVA equals AVA equals MVA.
Third, I want to say why MVA is not fair for the core of a large urban area like the GTA. This notion, MVA, which taxes the unrealized potential of residential properties, is not nearly as harmful for the core of smaller cities such as Kitchener or London. The selling prices in the core areas of smaller cities are generally no higher than the outlying areas for comparable properties because the travel distances and times are shorter and therefore do not put economic pressure on these areas. A much fairer method for taxing properties in Metro Toronto would be unit assessment, perhaps with some weighting for location factors.
Attached to my submission is an article from The Globe and Mail on the views of Jane Jacobs, that great North American authority on the life of urban areas. We are very fortunate that she came to us from New York City a number of decades ago. I will read some of the excerpts from that. I have underlined them so you can follow.
"Jane Jacobs...is opposed to market value assessment and calls the scheme `nutty.'
"The reassessment proposal...would increase taxes for many businesses and residents in the city of Toronto while lowering them for many in Metro's suburban areas....the tax measure will leave Toronto with only two large population groups, the rich and the poor, because of the high levies it will impose on middle-class tenants and homeowners.
"`This tax will have the effect of making the city an impractical place, but not for the richest part of the population or the most assisted part of the population. This is a very bad situation for a city to get into; this is a kind of rot'....property values in cities are higher than elsewhere because these urban areas are `efficient ways of doing everything. That's why people start businesses in the cities or go to cities.
"`The very concept of market value assessment, with its idea that somehow there is an unearned value in the city that must be gotten at, is wrong. It attacks the core of the value and the potentiality of the city'....market value assessment will undermine small businesses and the jobs they provide, Ms Jacobs said, saying that she had `seen the dying away of small businesses in American cities, often because of exorbitant taxes.'"
Going on, I'd like to say that a market-value-based system of assessing property is inconsistent, it's unfair and makes no sense. In no other case are personal assets taxed on the basis of their value. For instance, our stocks and bonds, cars, jewellery and furniture are not appraised as to their value each year for a rate to be set so as to collect a yearly tax. Governments don't do this because this is a tax on unrealized wealth and not on yearly income, which is associated with a person's share in the GNP and therefore the ability and the obligation to pay taxes. Clearly, it is inconsistent and unfair to tax one's total assets of, say, $300,000 which is basically in a residence which a person owns, but not to tax another person's total assets of $300,000 which is basically in stocks, bonds and nice furniture in a residence which that person rents.
But wait: MVA doesn't just tax personal assets in real property, in other words, your equity. MVA, in assessing the value of the property, levies taxes on one's equity plus the mortgage. You pay interest on the mortgage and that mortgage yields a tax levy. Amazing. Imagine what the Ontario Securities Exchange would have to say if the government tried to levy a yearly tax on $300,000 worth of equities where one-half of the purchase was financed by a loan. Are you convinced?
In no other case that I can think of are people obligated to pay taxes for services received based on the value of their personal assets. For instance, a driver's license, vehicle registration or provincial taxes on a litre of gasoline has nothing to do with the current value of one's car and has everything to do with the use of one's car.
Even in the case of a residence, some services delivered to that residence in the form of hydro, water and heating fuel are based entirely on the amount used. Sure, it is more difficult to meter the use of services to a residence in the form of garbage, sewers and fire protection, but surely the delivery of these services has more to do with the size of the building than it does with location and hence the value of the land on which the building sits. Besides, land closer to the city core is cheaper to service anyway.
Unit assessment is based on the size of the building and land, information readily available in the existing data banks of municipalities. Any physical change to a building which requires a building permit is automatically fed into the data bank for a quick, inexpensive and stable assessment base, without the need for $60 million a year in salaries, plus $40 million in overhead, to hire tax collectors who prefer to call themselves assessors. What kind of Common Sense Revolution is this?
This is not in my written portion, but asking a professional assessor what he thinks of MVA is a little like asking the fox to lock the door on the chicken coop. Obviously these professional assessors want to save their jobs, and that's one of the reasons we're in this mess, because the government is listening to that aspect of the finance department.
Finally, I want to demonstrate the unfairness of MVA by way of photographs, which you will find on the last three pages of my submission. In each case, a modest house on a small property in north Toronto is compared with a much larger house with garages and family room in very attractive areas of Metropolitan Toronto. Property taxes are shown as levied in 1992 and as would have been levied in 1992 if the Ministry of Finance 1988 market value impact study had been implemented.
The modest houses in north Toronto would have experienced tax increases of 32% to 72%. The large modern houses would experience declines of 20% to 34%. In every case, this has resulted in the modest houses paying slightly higher taxes than the large modern houses. If you look carefully, you can see this in every case. You tell me where you'd like to live. I have been to the areas. I took these pictures on the right-hand side. I can tell you these are lovely areas. They're much nicer areas than the areas on the left side of the page.
Is this fair? Does this make sense? Is this thing called MVA or CVA consistent with the payment of services for all other personal assets? Or is this Harris government going to surprise us with even more legislation which will levy a yearly tax on the current value of our cars, furniture and perhaps even our luggage, which we will have to pack eventually to leave for another province?
Thank you for this opportunity.
The Chair: Thank you. That leaves us with a little over a minute per caucus. We'll start with the opposition.
Mr Kwinter: Thanks for your presentation. I'm particularly attracted to the material delivered by the candidates in the last election. I'm sure they are delighted with it as well.
I'm particularly interested in what you showed, which is what I brought up with the previous deputant, and that deals with the property at 114 Wanless Avenue. That's a perfect example of what I was talking about. I don't know whether you were here.
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Mr Teichman: I didn't hear the last part, Mr Kwinter.
Mr Kwinter: What I'm saying is that on 114 Wanless Avenue you show a very modest house, by any standard, and the proposed taxes are going to go to $3,352. You show in comparison a very nice house. Certainly there's no comparison between the two in terms of what you get in the way of a house, yet the little, modest house is paying considerably more taxes.
I think that is a very dramatic illustration of what is happening. The value attributed to the Wanless Avenue house has to do with its geographic location, not with its intrinsic value, and that is the big problem when you deal with AVA, MVA or whatever it is. It imputes values that are totally unrealistic and totally dependent on extraneous pressures that have nothing to do with value in the house. Is that your feeling?
Mr Teichman: Exactly, yes. You've summarized it.
Mr Pouliot: Welcome, Mr Teichman. Thank you for the material. Is this a copy of -- I can't believe what I have in front of me, and I need your help, sir. I take it that this was circulated during the last election campaign? Is that what it is?
Mr Teichman: Yes. Isabel Bassett's right here with us. I think she could vouch for that.
Mr Pouliot: You see, one of the problems I've had is that I've tried to decipher between market value assessment and actual value assessment, and even if you are a forensic expert, under the scrutiny of the finest microscope, people tell us that there is no bloody difference. I'm sorry if I'm so bold. But I know now, thanks to you. It says, "The policy of the PC Party," those people there, "has always been that we will never impose market value assessment on Toronto." That's what they said. What did Sheila Copps do?
Then it says -- oh, this is a good one -- "stopping the downloading of mandates." Talk about veiled, talk about manipulative. You're right, the revolution marches on, and if you stand in the way on this --
The Chair: Mr Pouliot, I hesitate to remind you that we only have a minute. I know you're enjoying this so much.
Mr Pouliot: I'm not enjoying this, sir. I'm not. No, no. I'd much rather be in the House trying to stop you people.
The Chair: My apologies.
Ms Bassett: Thanks for your presentation, although I suppose --
Mr Pouliot: Your name's on this.
Ms Bassett: I know. In reference to my name being on that, I just want to point out that we did say we wouldn't impose market value assessment. We said, if you read the next line, that we would review all alternatives to market value assessment. After much study and consultation with other people and other groups, we have come up with alternatives that may be fairly similar in some ways, but they are different in assessment differences and on the tax side.
If you look at the assessment differences, the Ontario fair assessment system is going to update assessments annually. The assessments are going to be based on a three-year average to counter fluctuation of property values, whereas market value last time was going to be based on 1988 values, which were extraordinarily high. Under the OFAS, assessments will equal the current value of the property so taxpayers can easily understand them. Taxpayers confront me daily saying, "Why am I, on one street in Toronto, paying $3,000 more in tax on the same size of house, bought the same year, as my friend's house down the road that is the same size?"
Mr Teichman: I understand fully what you're trying to say, Isabel.
Ms Bassett: I just want to point out the tax differences, that the proposed new system will give municipalities the flexibility to set different tax rates on different classes of properties. That allows a totally different system within the broad guidelines laid out, and that is completely new.
Mr Teichman: That can be done in a unit assessment policy basis. What I am talking about here is market value assessment, which is the same as current value assessment. Market value assessment is unfair, inconsistent, doesn't make sense, and that is what I'm trying to talk about here.
I know you're talking about updating every year. Market value assessment, as it now occurs, is every four years. Don't forget that 70% of the municipalities do not have market value assessment, or at least they have not updated it, because they know it's not very good. It's not just in Toronto, but it's also in Kingston. I have a similar study for Kingston to what I have just given to you. We're talking to people in Kingston and they're doing the same kind of comparative analysis of houses in two different parts of Kingston which would result in very unfair taxation between the central core and the outside area.
What I'm trying to let you people know is that market value assessment is extremely unfair, and I think this Conservative government understood this. Certainly when I voted for the Conservative government in the last election I understood that you were going to do two things: You were going to try to reduce the deficit and you certainly were not going to impose market value assessment on us. I thought you'd learned something from the lesson the NDP learned. We went after them very hard four years ago, and I'm sure you'll remember that.
The Chair: I thank you, Mr Teichman, for appearing before the committee today.
FIONA NELSON
The Chair: We now welcome Ms Fiona Nelson. Welcome to the standing committee. We have 20 minutes together.
Ms Fiona Nelson: Mr Chair, ladies and gentlemen, I am not a tax expert and I would never present myself as one, but I am a passionate and long-standing lover of local government.
To give you a little bit of an idea, since 1969 I've been elected nine times to represent the ward presently called Midtown on the Toronto Board of Education. During that time I've also served on the Metro school board; the Toronto planning board, during the time of the central area plan and all the interesting things that flowed from that; the Toronto historical board; the Toronto board of health; the Toronto Food Policy Council; and, for the last 10 years, the Assessment Reform Working Group of Toronto city council. I say this simply to let you know that I've been immersed in local government for quite a while.
I've also served at all levels of school board associations up to the national level. Premier Peterson appointed me to his Premier's Council in 1988, provincial Treasurer Laughren appointed me to the Fair Tax Commission as a commissioner, and I've also chaired a provincial committee on food and agriculture. These are things I've done in the last 10 years.
I'm not trying to blow my own horn here, but simply to let you know that I've been involved in a lot of different aspects of local government and I care about what happens to my city, to my farm and to my province.
The study of local government and the ways in which we fund it has gone on for a very long time, and most of the studies have in fact taken quite a while. The Smith committee, I believe, took about five years. The implementation of reforms has also taken a long time each time it's been undertaken, simply because it is such a very complicated and far-reaching way of doing business and the whole matter of local government is of such significance to the citizens.
I have given you a tiny little brief which is just some points that I'm going to raise today. You will, in case you think you're getting off lightly, also get an appendix which consists of three presentations I have made in recent times, one of which was a commentary on the local government aspects of the Fair Tax Commission, one a submission to the Golden commission and another to the Burnham hearings. They all focus very much on the significance of local government and of its funding, so I would recommend them to your attention. They're somewhat longer than this submission, however.
The things I wanted to bring to your attention today are that since the Goldenberg commission and the Smith committee we've known that things were troublesome in the area of financing of local government. Several attempts have been made to do things and they have all foundered. I don't think they have foundered because of ill will or incompetence, but simply because the problems are so overwhelming.
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Therefore, it seems to me it's a very important thing not to proceed as hastily, at this time, as you are, especially since you are proceeding in concert with so many other initiatives, many of which also impinge very much on local government and its services. It seems to me that two of the biggest features of local government, that is, the uploading of education and the downloading of the social services, aren't even before you yet and they are a very significant part of this picture.
So it would seem to me very sensible to think about how those three fit together. At the moment we haven't the slightest idea how they will fit together since we have neither impact studies nor white papers giving us any help on that.
The Crombie commission had a very short time line, and even though they struggled to come up with reports, it doesn't appear that they've had much impact on what the government is doing and that troubles me just a little bit. One of the proverbs on which I was raised was that haste makes waste. I think in this instance it will make an immense amount of waste simply because we don't have any idea how all the pieces of the puzzle fit together.
I don't know how many of you as children played a nasty trick on your friends called "52 pick-up." That is the feeling many of us, as citizens in the province, are feeling at the moment, that everything has been thrown up in the air and we haven't the slightest idea where it's going to land or what kind of a hand we're going to get out of it.
I am convinced that what should have happened is that we should have presented a white paper on general principles, that we should have had a lot of public hearings to modify the principles and also to work out the technical bugs. I'm sure you heard this morning from the city of Toronto just what some of the technical bugs are. We certainly heard about them at the Assessment Reform Working Group at city hall.
It also seems to me, based on experience elsewhere, particularly in Winnipeg, that it should have been a very long implementation period, perhaps not starting until the turn of the century so that we were sure we had it properly worked out. In Winnipeg, as I'm sure you've already heard, they brought it in very fast and then had an enormously difficult time pulling themselves together afterwards from the mess they had made.
This Bill 106 has been hastily drafted and it seems to have left local governments and treasuries to work out some of the really quite significant problems of implementation. That seems to me tailor-made for trouble. Although the purpose may be some kind of equity or appearance of equity across the province, I think it will work in a different way, and I would imagine one of the ways that's most clearly demonstrated is the fact that the government itself is assuming there will be another 600,000 appeals. As you know, most of the commercial and industrial sector is already under appeal and has caused immense problems with the revenue base. We've lost hundreds of millions of dollars in Metro alone through successful commercial appeals. It does seem to me a great pity.
Also, it seems that for a very long time property tax has been an extremely stable form of revenue, very predictable and easy to manage. For one thing, it's very hard for people to evade property tax. They can't move the property to a tax haven. They can't devalue the property, really, unless they do it some damage or appeal their taxes successfully. So it's been possible for municipalities to predict their revenue pretty clearly.
At the same time the biggest chunk of expenditure has also been very predictable, and that's been education costs. What you have coming down the road in addition to the change in assessment is the downloading of some extremely unpredictable costs at the same time as your revenue base is going to be extremely unpredictable. I think that's going to make the whole business of local governance and the services people depend on very difficult.
I've lived in the same house for almost 42 years. In fact the house has never been in any hands except my husband's family's and now ours. It was built in 1936 and the cost was $6,000. It's a very ordinary, three-bedroom house on an ordinary 30-foot by about 100-foot lot in downtown Toronto.
The craziness in the late 1980s when properties went absolutely through the roof had a real estate man offering me $600,000 for this very ordinary little house. I said to him, "That is quite mad; it means my son and people his age will never be able to own property in this city or have a house," and he said: "Oh, we don't want the house. We want the land. We'd knock the house down."
All that tells me is that as long as we base the assessment system on market values, we have a crazy system. It's as close to Bre-X as I want to get. Oh, I thought we'd lost you for a moment there.
Mr Pouliot: No, Bre-X was there first, madame.
Ms Nelson: I'm sure. But the point is that the instability of market value, actual value or current value is what I'm attempting to demonstrate. The problem is that if we were looking at value in current use, we would not have the speculative aspect to the assessment system, but that's not what we're looking at. That's what Mr Crombie recommended, but that's not what we're looking at. It worries me very much that the cities are going to be very destabilized, the countryside is going to be very destabilized, because we are not taking the speculative aspect out of the assessment system.
It doesn't even achieve a level playing field for business, because what is going to happen is that the present higher business taxes on the large businesses and office towers are being rapidly reduced by appeals and are going to be further reduced by the assessment system, at the same time as little businesses and commercial strips are going to be priced out of business by their taxes. It's an unfortunate thing to happen when we know that the biggest creators of jobs in this society at the moment are small businesses and that they're going to be put in such jeopardy.
We have to be very concerned about what this destabilization is going to do. You can drive down most main streets these days and find plenty of small businesses already up for sale or vacant, and adding to that is not going to be at all helpful.
The other thing is that the business occupancy tax abolition is going to mean that the real pressure is going to come on small businesses and strip malls. The absorption of that amount of revenue, which I think in the province is about $1 billion, is either going to raise the property taxes on businesses as well, or part of it is going to have to be absorbed by the residential sector, and in either case I think will have unfortunate results.
I cannot imagine how residential taxpayers in this province are going to escape significantly raised taxes from the variety of moves that are taking place all at once. It seems to me that the cost of annual reassessment and the significant cost of appeals is going to have a very bad effect.
It's useful to consider the reliance we have on property tax. It seems to be restricted to the countries that are former colonies of Britain. In the rest of the developed world, property tax is relied on either very much less or not at all. They depend more on wealth taxes and inheritance taxes. But in the places on the map that all used to be pink when I was at school, with Neilson's chocolate bars all around the border --
Mr Spina: I'm glad you said that. I thought it was the NDP.
The Chair: Mr Spina.
Ms Nelson: That's quite all right.
You may recall those maps with huge chunks of pink all over the world. They're the ones that rely on property tax. Very often when people say we're terribly overtaxed, part of it is because they're thinking of their property taxes. In fact, that's the only tax for which you actually get a bill. Sales taxes get nibbled off bit by bit every day and I doubt if anybody could give you the total in a year. Income tax is often taken off at the source, and when you actually submit your forms at the end of this month, you may be in for a rebate. In fact, that's most likely with most people.
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With property tax you're getting a bill and you have to pay it. There's no way of evading it. There's no way of reducing it. People can often tell you to the dollar what their property taxes are. When we hear people saying they're overtaxed, it's because of our very heavy reliance on property taxes. With the proposed downloading of social services to property taxes, I think that's going to be even more significant.
It's not just an urban problem. As a farm owner, I've not claimed the farm tax rebate, but I do know that rural municipalities count on that farm tax rebate to do some things they couldn't otherwise afford because they know the farmers aren't going to be hit as hard as their tax bill actually makes it look because they're going to get back the rebate. That is sort of an after-the-fact subsidy of rural municipalities. I think this is going to be extremely difficult for rural municipalities that have on the whole very poor tax bases.
It worries me significantly also because, as a farmer, I know farm land is not replaceable. Good farm land occurs where it's warmer, the season is longer, close to municipalities and urban areas, where the land is level and where it's fertile. You can't just move a farm and expect the same yields. I'm very worried about the speculative value of the farms that are close to urban areas with these changes in the assessment system.
I would urge you to think about what is happening here: the implicit pooling by having a province-wide commercial and industrial tax, the possible pooling of some sort that will occur with the downloading of welfare costs, and the general unhappiness of the population. There will be virtually no one who will be happy with this system, and because there is no transition money involved in this, municipalities, even though there is a transition period stated of about eight years, will be forced to do it faster simply because the losers, the people whose taxes are going up, will be complaining and appealing, and the people who are actually going to get lower taxes will want it right away, so municipalities will have to implement it a lot faster.
I think this makes a very dicey, very unstable situation and one I wouldn't want to have to pick up the pieces from. It seems to me it's no way to deal with what amounts to the contract between the province and its municipalities. It seems to me that the only answer from the point of view of quite a few people I've talked to is for you to significantly slow down the process, perhaps withdraw the bill, rethink it, put out a white paper, wait until you see what the download-upload situation is going to produce, and then implement it farther down the road when you've got a better feel for what is happening. It seems to me that without impact studies and the other pieces of the puzzle, we're going into a situation that is very dangerous.
I presume I am not the only person saying this to you. I do hope that you will be able to pay some heed to this and bring in a system that will actually work for the benefit of the people. I know you told the earlier deputant you've looked at other forms and you've decided this is the best one. I suspect if you had more time to look at the other forms of property assessment, you might come up with some different answers.
That's my submission. You will be getting the three appendices which I hope you will find useful. I think I've got a couple of minutes left, if you have any questions.
The Chair: Not by my watch.
Ms Nelson: No?
The Chair: Your enthusiastic presentation has been most appreciated by the committee. Thank you.
Ms Nelson: Oh, all right. I guess I've got a bad stopwatch.
The Chair: I have 3:45 on my watch. Thank you very much.
REGIONAL MUNICIPALITY OF HAMILTON-WENTWORTH
The Chair: Our next deputant is the regional municipality of Halton-Wentworth.
Mr Marvin Caplan: Oh.
The Chair: Hamilton-Wentworth.
Mr Caplan: Actually, that's quite good. The gentleman who is going to be joining me is the former CAO of Halton, but we were smart enough to grab him.
The Chair: You're Marvin Caplan?
Mr Caplan: Yes, and my associate is Michael Fenn, who is our CAO.
The Chair: Welcome to the committee.
Mr Caplan: Thank you for having us here. I might start by talking just for a moment about partnership. The chairman of our health and social services committee, Ted McMeechan, often says to me, "None of us is as smart as all of us." I'd like to talk to you a bit about partnership and about assessment and how it affects us.
One of the things you might wish to know is that in Hamilton I have the honour of representing ward 1, which is the Westdale area, which will probably be the area that actual value assessment impacts on most, in the most affluent, older areas of our city. We haven't had a reassessment since 1974, so some of the things that people have been saying to you here are going to impact upon me directly as a politician at the local level. However, as I knock on doors, I assure you I will be explaining very carefully that actual value assessment wasn't my idea this year.
I have to say -- I hope there's no one here from the Hamilton Spectator -- that we understand that there's a rationale for actual value assessment: to make a level playing field across the province. One of the things we're talking about is competitive advantages and disadvantages among our communities. We also understand the need not to bonus from one community to another and to try and reflect that in what we're doing in our tax base.
I have a little bit to say from a personal point of view. I was the founder of one of our first business improvement areas in Hamilton, the downtown Hamilton BIA. That BIA and our downtown have been through quite a few changes and things are not a lot better. There are some difficulties with the legislation as it's proposed in that property owners, particularly when they're absentee, may not see some of the benefits of belonging to a business improvement area in the same way as the storekeeper on the street, who's choosing by and large to increase his taxes. It is the store owner who decides as a member of the BIA to pay more in taxes, which is rather a novel idea, I think.
In your deliberations, I believe that's an important consideration, and I don't know how to solve it. Someone told me that when I was elected to public office a little fairy would come along, tap me on the shoulder and I would immediately know all the answers to all the questions. It hasn't happened yet.
One of the other issues that I wish to talk about very briefly is the need to have a front-end-loaded, eight-year phase-in. It's going to be very difficult for us to negotiate at a civic level, at a municipal level, the length of time we're going to need to make sure this is fair. Everyone who is going to get a tax increase is going to complain. Everyone who doesn't get a tax decrease quickly is going to complain that they've been overpaying for years.
I also want to talk to you a little about what happens next. In fact, that's the bulk of my presentation, because I believe, as the previous speaker mentioned, it is important to understand the reason for going into actual value assessment. The reason we need municipal taxes is to pay for municipal services. Those municipal services that we now have and that we now have to pay for we understand and are prepared to cope with at the municipal level.
The legislation before you or a piece of the legislation that's coming down also talks about who's going to pay for what. What you are asking us to do with actual value assessment as we change the taxes in our community is to increase the taxes to the regional taxpayers of Hamilton-Wentworth by $121 million.
There are two major factors in the provincial downloading which will impact on us. We, unlike some other regions, support an older and less affluent population. We require a higher proportion of social services, health and housing. We, unlike younger suburban regions, attract a disproportionate share of social assistance and public health clients, particularly in Hamilton, where we are particularly good at it. Aging populations also tend to migrate to urban centres that are better served with the amenities and housing types required by the elderly. We think the downloading of social services, health and housing could result in an increased financial burden to the region of $262.5 million.
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In general welfare assistance, GWA, when the recent recession hit, our welfare caseload tripled. This caused, even at a 20% cost, a near crisis for our budgets. If you will go back a bit in history, you will recall that during the Depression several communities went bankrupt, and the cause of that, I'm told by the social historians, was the cost of welfare and the cost of social assistance borne by municipalities.
If we go to a 50-50 cost-sharing instead of 80-20, we have to increase the costs for our taxpayers by $33 million. The 50-50 sharing of family benefits with the region, which we currently do not provide any funding for, will cost us $95 million, and approximately one half of that is associated with the permanently disabled on family benefit allowance.
I must tell you that one of the reasons most of us got into government was to try and help people, was to try and make the world a little better place. I'm trying to be a little emotional here, but it's emotional reasons that cause many of us to get involved in this business. It's the disadvantaged, the people who don't have someone to speak for them, who are a particular concern of mine. I don't know if I would want to have actual value assessment paying for the care of someone who's disabled. I'll come to that in a moment.
Putting housing in the municipal sector will result in a cost of somewhere between $40 million and $60 million in our region. Removing educational taxes from the residential tax bill in our community will not be nearly enough to offset the downloaded obligations to our residential taxpayer. We get a lower proportion of tax revenues from the residential sector than the provincial average.
The positive results of our strong commercial-industrial sector: If you download the costs of social benefits to our community, you will put our industrial sector, our commercial sector at a disadvantage. Dollars have no conscience. The businesses in our community will be attracted to communities who do not bear the burden you are proposing to have us share with you.
I have some recommendations that we're going to make:
That social housing continue to be funded 100% by the provincial and federal governments.
That the drug benefit plan, homes for special care, long-term care, permanently disabled, FBA and the teaching health units be and continue to be 100% provincially funded.
That we're prepared to continue the 80-20 split for GWA, single-parent, family benefits allowance, child care and health care, but that any municipal financial obligations for human services should be capped.
That you should protect those areas of our community against economic downturns.
That you should commit yourself through legislation to refrain from any unfunded mandates in the provision of services.
Among the choices you have, if you have to download some of these things to us, are capital costs for education.
If I can speak a bit more extemporaneously for a moment, it seems to me that one of the things we do in government is that we try to make things more fair. We try to balance competing needs. What's happening with the downloading is that you are making it more difficult for those communities like Hamilton-Wentworth, that are somewhat poorer, somewhat older and somewhat more industrial, to compete. When that happened in other jurisdictions, downtown Buffalo and downtown Detroit resulted. We have to find ways of sharing of some of those loads across wider sectors of the population.
I don't believe anyone in this room or anyone in this Legislature wishes to create a permanent underclass, and certainly you don't wish to create it in my town. I don't believe that's the intent of anyone. But knowing that everything works out in average doesn't help us.
The statistics you have in front of you I think are fairly clear. I don't need to go through the whole dog-and-pony show. I'm sure your staff is going to very clearly tell you the kinds of impacts some of these things are going to have.
I've brought somebody who knows the answers to the tough questions, if they're technical.
The Chair: We'll start our questions then, about three minutes per caucus.
Mr Pouliot: An excellent presentation. This is not a question, but we'll sleep better tonight knowing, mathematics being what they are, that Frank Stronach, the chairman of Magna International, will be getting in four instalments a 30% reduction in his personal income tax at the provincial level. That's the reality of the day. He made $38 million last year, and some of the people you've identified, so this is the sense of justice portrayed by the government.
Some of your taxpayers are expecting a 10% reduction in their property tax by the year 2000. Like most of us here, if not all of us, they read newspapers, and when the Premier of the province says, "By the year 2000 you at the municipal level should be able to deliver a 10% decrease in property taxes" -- and the year 2000 is three years down the road. Please speak with certainty. Do you see yourself in a position where you'll be able to deliver a 10% decrease to your property taxpayers?
Mr Caplan: The obvious answer is, of course not, in our community. My understanding of the numbers is that the only communities that will be able to deliver a tax decrease are those communities that are now the fastest-growing, youngest and most affluent.
Mr Pouliot: As you are well aware, this is not revenue-neutral. This is not an exchange of responsibilities.
Mr Caplan: Forgive me, but the total dollars today may or may not be revenue-neutral; some of these numbers are very complicated, as you know. But what I do know is that it's not fair. Whether the total dollars across the province will or will not work out, the effect on the community I represent is devastating.
Mr Pouliot: Are you aware that through Bill 106 the banks are getting a benefit, that if you occupy an office in a bank tower you will not have to pay, for your keep, the same amount of money?
Mr Caplan: One of the difficulties we are having at the municipal level -- and again we talk about partnership and the need to be at the table -- is that we don't, in all honesty, know what the ramifications are of some of the changes in property tax from business tax. While I know you are making a political statement, from the practical point of view the difficulty is that we don't know. It's very difficult to budget on a daily basis or a monthly basis or a weekly basis if we don't have the information.
Mr Pouliot: Do you fear an erosion of the middle class?
Mr Caplan: I believe you're asking me a social question, which I'm more than happy to discuss with you, but I don't believe that's part of my presentation and is beyond my mandate, sir.
Ms Bassett: Thanks for your presentation. I just want to point out, as you know, that the province is currently involved in discussions with AMO as to the so-called exchange of services.
Mr Caplan: I understand they're making a presentation tomorrow morning. My difficulty is that AMO may not speak to you with the same passion, and I believe that some of the give and take within AMO is similar.
Ms Bassett: They are negotiating, so it's still very much open, and we're certainly listening to what you say. I want to add, though, that we do have the $1-billion fund, plus the $700-million social assistance reserve and the $800-million capital and operating fund that is there to help municipalities in need, one way or another. It's not as if you're being cut adrift out there. We're very much aware of you and your problems and we're working to solve the situation.
Mr Caplan: I understand that, but I also have some perplexity in that we have no idea how the amounts of money you're talking about will be allocated. We don't know where and how those moneys will be used.
What we're asking for is that if in fact we are your partners in this, you as the closest representative of the government, we need to be at the table with you, bringing down a suggestion like this. I don't wish to be political, but it's difficult.
Ms Bassett: Of course, and that's the kind of negotiation we're already involved in. I want that made very clear.
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Mr Kwinter: Thank you, Mr Caplan. As always, it's a pleasure to hear your presentation. Your impact analysis is fairly similar to what most municipalities have come up with. There are different numbers, but the basic analysis is that in most cases it's going to cost them far more money than they're going to save with the switch from education to the things that have been downloaded on them. I notice that you've left "unknown" the contribution to the social service fund, GO Transit, transit and the provincial highways. Surely you must have some ballpark figure of what you think it might be.
Mr Caplan: I will tell you, Mr Kwinter, that I have with me -- I don't think he's going to get a raise, but I've been involved in politics, meeting people, and in business for a long time, and I have yet to meet a brighter person. When he tells me he has little idea and doesn't understand what the impact of this is going to be, and our people tell me the same thing, I believe him. No, we don't know.
I would, however, take you back a second. I think it's important to be fair. If I was sitting here from Halton, I'd be asking you to leave this exactly the way it was. Halton's a big winner. The wealthier, younger and fastest-growing communities, those who need help the least, are helped the most by the downloading of social services.
As far as GO and some of these other services, we don't know. Where does the track start and stop being part of my municipality? When does GO Transit infrastructure become part of my responsibility and when doesn't it? You haven't told us. I have no idea. When I'm writing my next campaign brochure, I'm not going to be telling people, "I'm going to keep your taxes down," because I don't know how. I also don't know what I'm dealing with.
Mr Kwinter: The reason I was trying to get that number is that you've got your $121.5-million increase. I think it's a fair assumption that that is going to go higher, to some degree.
Mr Caplan: Yes. The point is that it's not going to get better. What you've said to us in effect is that you've got bad news and worse news.
Mr Kwinter: Okay. As a politician, what do you and your colleagues do to deal with this? Is it is a matter of increasing taxes or cutting service or both?
Mr Caplan: I believe we are now, in my community -- I can't speak for my colleagues. I have no choice in my mind. We've been fortunate enough, through the dedication of some superb bureaucrats in our community, to keep our taxes flat or very low for the last several years, but I believe we've cut into our reserves. If we had this legislation down and we had the same kind of recession we experienced in 1989-90, our community could not cope with it. I believe we are already behind in raising taxes, just with the possibility of this coming. In my opinion, we don't have enough reserves, so we'll have to raise taxes.
The Chair: Thank you very much, Mr Caplan. We appreciate your presentation and the time you took today.
WESTIN HARBOUR CASTLE
The Chair: We now welcome the Westin Harbour Castle. Mr Abji, welcome to the committee.
Mr Minaz Abji: My name again is Minaz Abji. I'm the managing director of the Westin Harbour Castle and I also supervise Westin's operations in eastern Canada. My hotel would be classified as a large operation catering for the most part to the business, leisure and convention trade.
I did not give you any handouts because I only found out about this yesterday and I was in Seattle; I came on an earlier flight to make this meeting. I'm sorry that I don't have things prepared for you.
We have 980 rooms, as you know, some 70,000 square feet of meeting space, and we employ 550 full-time equivalents, which is 750 people. Like every other hotel within Metropolitan Toronto, we have been severely impacted by the inequitable level of assessment on our operation. PKF said in their report, if you already have not heard, that the excessive level of realty and business taxation are threatening the economic viability of the hotel industry in Metropolitan Toronto. This is a true statement, both for our hotel and the industry in Metropolitan Toronto.
Tax arrears and receiverships have significantly contributed to the ongoing problems of the industry, whereby we have bankruptcies and people buying hotels at a lower price than what it cost to build them, and then they charge lower rates and they depress the average rates. When we compete in the marketplace, we cannot raise our prices. We have high taxation. We lose money.
Our average rate in our hotel, this year, will surpass 1988. This is the first time we will surpass that rate, and we have been putting cash into the hotel. We put about $3 million just to keep the hotel running as well as do the minimum capital improvements every year.
It is my understanding that Bill 106, once passed, will provide hotels fair property tax treatment, that is, that we will be assessed at the same level of assessment as other commercial properties. I would also like to address a number of other important issues: the variable tax rates, which are crucial to the success of this legislation; and the provision enabling the minister to create new classes upon request from a municipality.
The legislation contains clause 2(2)(e), which causes the industry real problems, and we suggest the government agree to amend it. It would allow the minister, upon request from the municipalities, to prescribe new classes of property which could be taxed at a different rate. We understand that the intent of this section is to enable the minister to support the objectives of the municipalities, but we think our industry has been victimized for the last 25 years by such discriminatory action and cannot agree that allowing for the possibility of such action to occur in the future makes any sense for us.
Surely these future objectives of the municipalities are worthwhile, and in the public interest the government of the day then should have no trouble introducing legislation. But allowing for a simple ministerial action will not guarantee an open process, and such action, if implemented, in our view creates unneeded pressure on the minister and would be unfair to our industry.
History clearly demonstrates that business, when placed against residents, cannot depend on the municipal levels of government to ensure that it receives fair and equitable treatment, be it for property tax or other areas, and we have seen that in our industry.
Bill 106 is about providing fair and equitable property tax treatment for everyone. We urge you not to provide the means to cancel this principle in the same bill. If my hotel and others are to receive the benefits of property tax reform -- lower taxes -- then the establishment of the new variable tax rates is critical to meeting this objective. The finance minister recognized that the hotels in Metro Toronto were disadvantaged by the property taxes that were higher than those of the commercial sector and would take action to address this disadvantage.
I and my colleagues are very concerned that all this could lead to the municipality being able to thwart this commitment by way of its ability to set these rates. Toronto city council has been supportive in having hotels being treated fairly. However, if it comes to residents and property taxes, we do not stand a chance. Therefore, I urge you to ensure that in setting these ranges it is done so that the benefits of the property tax reform flow through to us in the form of lower taxes.
It cannot be stressed too much: Lower property taxes are the key to restoring economic health to our industry. Property taxes are my largest uncontrollable expense. I open the door, $6 million. I can accept paying my fair share, but I need the revenue from lower taxes to reinvest in my operation.
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I would like to state our support for the elimination of the business occupancy tax. It was unfair in its application, and given that millions of dollars went uncollected yearly, it seems reasonable to drop it. I fully expect the municipality to require less money, given that it will now collect 100% of its assessment. We do have a concern that if the BOT is still part of the assessment -- hotels currently are rated at 30%, and if it comes back, we hope our assessment is not higher than 30%.
As with the variable tax rates, I urge the government to ensure that in all likelihood, this amount comes back on to the property tax base. Municipalities must do it in a fair matter, and by that I mean they should not be able to download it at all, or the majority, on one class or a class within a class. It must be applied in a fair and equitable manner across the board. I don't mind paying my fair share, but after 25 years of subsidization, we have had enough.
I also want to add endorsement for the three-year rolling average for assessment purposes. Once the new system becomes fully operational, a blended average will be fairer for all the stakeholders. A three-year blended average should eliminate the spikes and result in a fair assessment, which will hopefully take into account the business cycle which we in the hotel business do experience.
Before closing, I want to briefly raise the phase-in provision. We have been waiting for 25 years for fair property tax treatment. Waiting for another eight years to receive the full benefits is very tough for us to accept, especially with the possibility of the new class creation or subclass creation.
In summary, Bill 106 begins the process of providing my hotel and those of my peers with fair property tax treatment. It is unfortunate that we've had to wait so many years to be treated fairly. Please take the necessary steps to ensure that fairness will be provided us in this bill and not be thwarted by a variable tax rate process or by allowing new classes to be created in a relatively easy way. Thank you very much.
The Chair: We have about three minutes per caucus. We'll start with the government caucus.
Ms Bassett: Thank you very much for coming back from Seattle.
Mr Abji: The weather was much warmer there.
Ms Bassett: I do understand that hotels have laboured under an unfair system for many, many years, as your colleague Mr Seiling has pointed out on many occasions. It has got through to us. We're aware of that.
The bill ensures that you are protected in so far as it's up to the minister to say whether the municipalities can set a new -- you know, that you can be taxed differently. I feel that you will be protected. Do you feel assured?
Mr Abji: If you have a subsection that will create separate classes, we feel that if you leave it to the municipalities, we will be taxed unfairly again, like we have been.
Ms Bassett: But if the minister were to reserve that right for himself or herself, whoever that would be in the future?
Mr Abji: Our position is still that that should go through as legislation and we should not have that, because governments do change. Very clearly, very soon everything could be back to where it was and be unfair again.
Ms Bassett: So how would like it?
Mr Abji: We would like it to go through legislation and not that way; as a new tax situation versus just change because of a request.
Mr Phillips: One of the challenges we face is that we only see a part of this bill; I gather there is more legislation coming in the spring or later. We won't get a chance to address your concerns, because right now the bill doesn't permit another class, but the minister has indicated he's planning to bring that forward. So we're dealing with an unusual bill here and being asked to approve sort of a wrapped-up box. We can't take the wrapping off and look at it, just sort of approve it.
Just to try and help us out a little bit on the impact of this bill, if they don't go ahead with the second class, would this in your mind a 5% reduction on your property tax, a 10% reduction?
Mr Abji: Currently, hotels are assessed at 8.2% and commercial establishments, I believe, are rated at 4.6%.
Mr Phillips: So you would think it could reduce your taxes by --
Mr Abji: Half.
Mr Phillips: You indicated that you're paying $6 million a year?
Mr Abji: Yes, overall our hotel is.
Mr Phillips: Right. So for the industry, have you any idea how much this would help the industry in total?
Mr Abji: How it helps the industry is that owners of hotel properties are not putting money back in, which affects jobs in the city and affects a lot of money flowing back in the economy. It doesn't happen. So our owners put the minimum amount of capital in.
Mr Phillips: I meant that for your hotel it's $3 million but for the hotel industry --
Mr Abji: I don't have the figure.
Mr Phillips: Would it be $30 million, do you think?
Mr Abji: I don't have the number.
Mr Phillips: One of the challenges here is that industries like yourself are going to benefit fairly substantially.
Mr Abji: Because we've been unfairly taxed before.
Mr Phillips: I understand that. It's just that not many people willingly say they've been undertaxed, and in the end your $3 million for the municipality of Metro Toronto, somebody else is going to have to pay that. I don't see there being a reduction in the revenue the municipality requires.
Anyway in your mind, roughly, the bill would cut your taxes in half.
Mr Abji: Right. It will be a fairer system. Everybody would pay a fairer tax.
Mr Phillips: Your current business occupancy tax, you indicated, is about 30%, and I guess your savings come by cutting in half your assessed value. You've indicated that you're concerned about phasing. Maybe I don't understand the bill well enough, but there is an eight-year phase-in. I know there is for tax increases, but there is for tax decreases as well, and you would like to see that changed to a much shorter time frame, I gather.
Mr Abji: Yes.
Mr Pouliot: Thank you again for having made the valiant effort to come from Seattle to present and defend what you think is just and right.
My colleague has talked about the wrapped-up box. Please trust me on this matter: It's more like a bag of snakes. It is the complexities, and we with the opposition unfortunately do not have access to it. You've expressed a fear. I know that you have been victimized for 25 years and you're not too comfortable in waiting for an additional eight years of that purgatory, that victimization. So you'll be anxious; you'll be right there at the altar saying, "Show me the money" -- right? -- "or take less."
I just want to test your understanding of the way things work around here.
You see, the province gives you a tax break, right? It restores a sentiment of justice. So you go from $6 million to $3 million, but you fear that if the province does not protect you, would the city of Toronto? Because those three million bucks have got to come from somewhere, no question. So the city of Toronto, with its new responsibilities, will gather to descend on Harbour Castle and try to pick it, right?
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I've been here 12 years and during that time we've had, courtesy of the taxpayers, sort of turnstiles of government. So unless you have protection by legislation -- you see, we can change regulations without going to the Legislature. They've cut the welfare recipients, the less fortunate, that's the first thing they did when they came in, 21.6%. They didn't have to go to the Legislative Assembly to do that. They said: "Okay, they're the downtrodden and low-lifes. Out they go, 21.6%." But if it was part of the legislation, surely if a new administration was intended, they would simply open the legislation. The sponsor, the minister would call the bill and amend it and you'd be right back to square one. But you would still prefer to see it in the legislation. At least you would have partial protection. Is that right?
Mr Abji: Yes, we would.
Mr Pouliot: How's business at Harbour Castle lately?
Mr Abji: Business? It's similar to last year.
Mr Pouliot: Occupancy rate is okay?
Mr Abji: It would be similar to last year.
Mr Pouliot: Do you have a contract with your 550 full-time-equivalents, collective agreement with them?
Mr Abji: Yes, we do.
Mr Pouliot: No problem with the collective agreement?
Mr Abji: No.
Mr Pouliot: Reasonable people, hard workers?
The Chair: I think our time has expired as we wander away from Bill 106. Thank you very much, Mr Abji.
Mr Abji: I don't know where I was going there, but thank you for saving me.
The Chair: I wasn't sure either, but we were getting way off track, I think. Thank you very much for attending today and taking the time to present to us.
FAIR RENTAL POLICY ORGANIZATION OF ONTARIO
The Chair: We now have the Fair Rental Policy Organization of Ontario, Mr Dewan. Welcome to the committee, sir.
Mr Philip Dewan: My name is Philip Dewan. I'm the president and CEO of the Fair Rental Policy Organization of Ontario, which is the largest landlord group in the province. We represent over 900 members who range from the very smallest to the very largest property owners in Ontario.
Many of our members have strong views on a number of the issues that are covered in this legislation, including actual value assessment, business occupancy tax and tax assessment policies. However, all those issues pale for our members and for our customers, the tenants, in comparison to the importance of the property tax rates for multiresidential housing. Today I'm going to confine my remarks just to that specific issue as it's dealt with in Bill 106.
In summary, our view is that we're quite disappointed that the government has backed away from the real challenge of ensuring fair tax treatment for tenants by relying on placing the onus entirely on individual municipalities to decide whether or not they want to redress the obvious inequities in the tax system. I think there's been a real opportunity for leadership that is lost here and I hope the committee will consider trying to redress that.
When the current Conservative government came to office, it inherited a very clear need to reform the property tax system. There's pretty widespread agreement on the kinds of problems, and many of the reports, including the massive volume of the Fair Tax Commission that was commissioned by the previous government and the subsequent documents that came from Anne Golden and David Crombie, all highlighted the perverse nature of the taxation of multiresidential housing.
I think you've heard the numbers before and I don't need to go through them in detail, but in essence across the province we're looking at tax rates for the multiresidential class -- that is apartment buildings with seven or more units -- that are between two and five times higher than for smaller buildings and single-family homes and condominiums.
The disparity between the multiresidential class and single-family class is probably the largest single inequity in our entire tax system. By failing to address this issue, I believe that Bill 106 is doing a grave disservice to everyone.
With my remarks today I've handed out one of our previous publications, Property Tax and Tenants, which we produced several years ago when we were trying to get the various levels of government to pay attention to this issue, and I think the facts in there are still quite relevant. I'm not going to go through it in great detail. I'll just sum up a couple of the major points that we're trying to make.
Tenants are now paying property taxes which are, on average, about two to two and a half times those of homeowners in the province and almost five times higher in the city of Toronto. At the same time, the average household income among tenants is just over half that of homeowners, meaning the regressive nature of the system is even worse than it appears on the surface.
As well, tenants on average have smaller families than homeowners and apartment buildings are less costly to service than lower-density housing, which if anything would present the case for lower rates rather than higher rates.
The property tax inequity forces rents higher than would otherwise be the case, which the Fair Tax Commission pegged at about $100 per month as the differential created by this in the Metro Toronto area. There's an effect not only on the rents for existing housing but on the supply of new rental housing.
The current Minister of Municipal Affairs and Housing commissioned a report early in his tenure from an economist named Greg Lampert which identified the property tax burden as the single largest factor in restricting the construction of new rental accommodation. Unless we come to grips with this and really do something that's going to change the situation, which I don't think this bill will, we're going to guarantee that there will continue to be almost no new rental construction in the province.
From our point of view the status quo is clearly indefensible. As an example, in one building in downtown Toronto a 678-square-foot apartment pays $4,240 annually in taxes. Across the hall the same unit, same building, same size, which is owner occupied, as a condominium pays $1,688. A few blocks away you can find very substantial homes in Rosedale which are paying in the $4,000 to $5,000 range, the same as the apartment. There's simply no justification for this. These numbers, both the inequity between the classes and the actual gross size of the property tax burden on apartments, are unprecedented anywhere else in North America.
One of our members who has properties in quite a number of jurisdictions took a look at the actual property taxes that they're paying elsewhere, which usually run about one to two months' rent in comparison to the three to four months in Ontario. We found that for a unit that has taxes of between $2,000 and $3,000 in Ontario depending what municipality it's located in, you would be paying about $626 in Vancouver, $702 in Calgary, $566 in Halifax, US$737 in Buffalo or US$608 in Ann Arbor. Wherever we look, and then we can go through a whole other list of comparisons across North America, Ontario stands out in terms of a very substantial burden.
As a result of these inequities we've created two major problems. One is that rents are artificially kept high in order to cover this tax burden, which reduces housing affordability for tenants and forces many families over the threshold of poverty. Certainly it's my view that if those politicians who spent a lot of their time talking about the need for rent controls and decrying the lack of affordable housing really wanted to do something about improving the situation for tenants, the number one priority should be addressing the property tax reform.
Second, the excessive property tax rates are a major contributing factor to the lack of rental supply, as the Lampert report referred to. In the last year or two we've had about two dozen rental units -- not buildings, individual units -- built in the entire GTA and about 500 across the province, compared to the 5,000, 10,000 and 20,000 units we used to get not that long ago. Again, the Lampert report identified a large portion of the responsibility for that, although by no means all, is accountable for the property tax burden.
The government has recognized the supply problem, and certainly when they announced the Fair Municipal Finance Act, one of the government press releases stated very clearly the situation we're in. I quote:
"In almost all Ontario municipalities, rental apartment buildings...are taxed at least twice as heavily as single-family homes and condominiums.... High property taxes represent a major obstacle to investment in new rental housing.... Property tax reform for apartment buildings is a key part of the government's strategy for increasing the supply of new rental housing."
Unfortunately, if property tax reform is indeed a key part of the supply strategy, it was not evident in the legislation itself. Yes, Bill 106 will "give municipalities the power to ensure that rental properties are taxed at a fair rate," to quote the press release, and allow them to "request a separate tax class for new rental apartment buildings...comparable, for example, to owner-occupied condominiums or single-family homes."
By the same token, it will also give them the power not to do anything to ensure that apartments are taxed fairly and it will allow them not to request a new class to tax rental buildings equally with other residential accommodation. Given the relative power of tenants versus homeowners in municipal politics and the long history that we've seen in that area, the changes in Bill 106 are really going to do next to nothing. The same municipalities that have perpetuated decades of inequities I think are going to continue to do the same thing.
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The government's strategy, which is put forth by Anne Golden and David Crombie in their reports, seems to be that by ensuring greater transparency in the system and placing responsibility for change clearly with one level of government, pressure on local councils will eventually force the problem to be addressed. I don't believe that's going to be the case, but even if it were, the time it's going to take is going to be much longer than either tenants should bear or the province can afford to do without new rental housing.
I think it's important for the committee to really grapple with what can be done within Bill 106 to try and address the issue today, to address the unfairness and to address the supply concerns. What that means is really amending Bill 106 to require rather than just allow municipalities to institute those changes. Where we're starting from, I think, as a guiding principle is one of the key recommendations in the Fair Tax Commission report, which, though it was commissioned by the previous government, in my discussions I've heard supported by members of all three parties, that "all residential property should be assessed on the same basis whether the property is occupied by an owner or a tenant."
FRPO has long recognized that the rebalancing property tax rates will need to be carried out over a reasonable period of time. It can't happen overnight. Therefore, we would make two specific submissions for amending Bill 106. One is that all municipalities should be required to tax new residential accommodation at a single rate, regardless of the size or the tenure. If you build a new house and you build a new apartment building, whether it's one unit or 200 units, the tax rate should be the same. That would provide an immediate incentive for the construction of new rental housing in the province, which is badly needed.
Second, over a five- or 10-year period, we should be requiring municipalities to phase out the existing differentials between the residential classes so that traditional ownership housing, condominiums and large and small apartments are all taxed equally in the end.
There are precedents for doing this. Manitoba is now more than halfway through a 10-year phase-out of the differential which they used to have between the residential classes, and the city of Calgary has just introduced a three-year program to bring their residential classes to an equal footing after having already cut the differential by about 40% a few years ago. What it really takes is some political courage on the part of all the parties here.
Finally, I just want to mention that landlords certainly have no problem supporting the position that the savings from across-the-board tax cuts should be passed on to their customers as well. Indeed, even in the absence of any form of price control, simple economics would dictate that if you substantially reduce the largest single operating cost for apartment buildings, competition will ensure tenants reap the benefits. Nevertheless, since we will continue to be stuck with some form of rent control in the province for the foreseeable future, albeit somewhat modified under the Tenant Protection Act, the concerns of sceptics can be addressed by legislation.
As a corollary to the kind of changes we would like to see in Bill 106, we would support amendments to Bill 96 to ensure that the tax savings from changes to the multiresidential realty tax rates were passed on to the benefits of tenants in reduced rents or contributions to capital accounts for necessary improvements in the buildings.
Over the years I've heard support from members of all the party here and from mayors and councillors across the province, agreeing that the situation is inequitable in terms of the property tax rates on apartment buildings and a lot of rhetoric about doing something about it, but whenever we got down to detail, inevitably the municipal politicians would point out the province and vice versa.
In Bill 106 we have the chance once and for all to stop passing the buck and actually address the problem. I would urge the committee to take up the opportunity to do so. Thank you.
The Chair: Thank you, Mr Dewan. That leaves us with about a minute and a half each for questions.
Mr Phillips: Just one observation: In your judgement no new rental accommodation is being built, virtually none. That's just an observation. You have two recommendations. Do they both have to be done? If you were only to do one, for example, the first one, is there a problem with that in terms of there being such obvious inequities between existing and new that it would create some severe distortion or problem in the marketplace?
Mr Dewan: Certainly I would think there would be some real problems there. Definitely, you are creating distortions. You're also looking at, in the legislation, that new class for new apartments is only a rate that's available for an eight-year period. After that you would have a sudden significant jump to the rate that applies for all multiresidential accommodation, which is going to play havoc with your pro formas if you're trying to estimate the cost of running a new building.
I think you've got to look at it in two stages. You may bring in the one immediately and then phase-down the other so that by the eighth year, or whatever period of time is taken between five and 10 years, you're essentially at the same point in time. But we would definitely want to make sure that the two concepts are linked.
Mr Pouliot: Thank you for your attendance and presentation. You've indicated that both high taxes and rent control are deterrents to a renewal of new properties being built. Yet in your tone -- please correct me if I'm wrong -- you wouldn't be opposed to, on the rent control side, sort of a phase-in, sort of a faux protection for Ms Jones. When Ms Jones is evicted during a low vacancy rate period and she's 74 years of age and she finds herself in the snowbank in February, politicians don't like that, that I can assure you of. There are many Ms Joneses and only one of you so it's simple mathematics.
Given the incentive, when Bill 106 passes, how much of an impact will that have on people like Tridel -- not so much people like Tridel but the medium-sized, let's say, apartment owners?
Mr Dewan: I'm not sure, are you talking about if Bill 106 passes as is or with the kind of reforms we're recommending here?
Mr Pouliot: Let's say as is.
Mr Dewan: As is I don't think it will do much at all because I don't see many municipalities moving very quickly to change the tax rates. Certainly it can't happen within the next couple of years. By the time you get the new councils in place and they actually pass the measures that are required under this act, you're going to be at least two years down the line. And then, how many of them are going to move very quickly? It takes a long period of time for tenant pressure to try and move that along.
Mr Jim Brown (Scarborough West): Good presentation. You know, tenants don't know how much taxes they pay. Your comment, they pay twice as much as homeowners, they don't know that. All they hear are the mayors like Barbara Hall coming here with busloads of protestors about rent control and they don't realize that she's the one who is doing it to them. They don't realize that tenants are $34,000 household incomes and homeowners are $60,000 and yet they're paying twice as much in property tax.
Mr Dewan: In Barbara Hall's jurisdiction, they're paying almost five times as much.
Mr Jim Brown: It's incredible and it's too bad that they don't know and they don't realize. You go on to say that the municipal politicians talk about all this stuff and they're blaming each other. They should make property tax their number one reform. It's obvious why they don't, I guess. What would you say about why they don't do that?
Mr Dewan: It's always easier to pass the buck, and I guess that's why we would prefer to see the province address it directly here in the legislation rather than putting in to the municipal ballpark because then you're leaving it up to a lot of individual decisions by councillors across the province who are subject to all sorts of pressures. Everyone has recognized the problem. We think it should be addressed directly and the province has the opportunity to do that in this legislation.
Mr Jim Brown: I guess renting all the buses and bringing people here shifts the blame to the province when they should look in their own backyard. That's what you're saying.
The Vice-Chair (Mr Tim Hudak): Thank you, Mr Dewan and the Fair Rental Policy Organization of Ontario for your presentation today. Have a good evening.
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BATHURST-DAVENPORT COMMUNITY ASSOCIATION
The Vice-Chair: The next group before the committee is the Bathurst-Davenport Community Association. Good afternoon, Mr Cassel. Welcome to the finance committee.
Mr Richard Cassel: Thank you for allowing me to speak. I've never addressed such a committee before, so bear with me. I run a furniture store. I live in the Bathurst-Davenport area, which is a small group of homes south of Casa Loma, north of the Annex, sandwiched in beside the railway tracks. Perhaps it would give you a better understanding of what I'm trying to explain if you imagine you are a neighbour of mine living in that area. These are small homes on 15- to 20-foot lots. They were built in the early 1900s. It's mostly a single- and two-family neighbourhood of regular wage earners.
The taxes I pay on my house at present are in the range of $2,400 a year and I've heard numbers ranging up to $4,500 a year for my new tax load. This of course would be based on some kind of assessment. The assessment is somewhat slanted because, being near downtown, a lot of developers want to buy up and break up the neighbourhood to put up larger, fancier homes. This might be nice somewhere in the future when we sell our homes, but I like it the way it is even if it is an old home in a little bit of an unusual area.
I first got involved with a market value assessment problem a few years back when a politician's aide came and knocked on my door and told me my taxes were going to go, at that time, to about $4,500 a year. Before that I didn't really understand market value assessment, but having been told my taxes would double from a more or less reasonable amount to quite a large amount, it got me involved in it. Since then I've had the opportunity to meet with David Crombie and Anne Golden and some of the other Toronto number crunchers and it scares me to think that I'm being delivered a package by the government without being given any actual numbers. I want to see the numbers of what my taxes will go to and so do all my neighbours. If those numbers exist, I'd like them released, and if they don't exist, I don't know how you can go forward with this legislation.
The homes in this area, by the way -- this is the Bathurst-Davenport area -- as I said, it's a residential neighbourhood. I've also noticed in this meeting the tax structure from hotels and rental properties is obviously slanted against those properties. That is something the local politicians have decided over the years that they wish to do for whatever reasons. I'm not asking anybody here to reopen the legislation, but I do recall that because of all the public money that's going into various trade centres and other tourist kind of benefits, they decided at that time the hotels would bear a heavier tax load because they were one of the major beneficiaries of that public money.
Getting back to this market value assessment, actual value assessment, in speaking to some of the different groups around I've looked at different tax systems. Certainly the tax system that Toronto uses now is archaic, it's out of date, and it's got some major inequities and should be corrected.
The actual value assessment that they use in British Columbia costs, when translated to the population of Ontario, approximately $150 million a year for the province to register with the appeals, plus the assessment teams, plus the cost of the private sector when they are appealing the taxes. So there could be $200 million or $300 million worth of costs in running an AVA system.
When you start comparing something called unit assessments and actual value assessment, you'll find that actually Toronto used to have a unit assessment system based on the size of the lot, the size of the home, the number of rooms, the number of bathrooms and kitchens and what not and a particular value assigned to each room, coming up with an equitable way of comparing properties.
A unit assessment system, if you were to rework it into current numbers, would again take in the lot size, the gross floor area of the house and the use of the property. The market value kind of assessment system is so flexible, and particularly getting back to my neighbourhood in the Bathurst-Davenport area -- I'm on the fringe of downtown. The identical house to mine, if it was 10 blocks out of downtown, would assess quite a bit lower and the identical house 10 blocks closer to downtown would assess quite a bit higher. That's to say that the cost of delivering municipal services would be different to identical homes within a 20-block range. That is not common sense. Delivering municipal services is determined by, as I say, some factor of the lot size, the gross floor area and the use of the property.
A unit assessment system is a stable, predictable amount of tax. I would know next year how much tax I would be paying, at least on my mill rate, where with market value assessment it can be up and down like a roller-coaster. To have any fair understanding of my home's value, a stable amount of tax predictable from one year to the next would be a benefit.
With a unit assessment kind of system, if there's an appeal you do it with tape measure, and the only change to the assessment of a home would be if you take out a building permit. It's easy to run a system like that. It's a fair system. The actual value assessment that you are suggesting is going to be a horrendously expensive system to administer requiring appeals and reappeals and professionals to run my side of the appeal against the government's professionals.
One other thing that should be looked at in considering a unit assessment system, at least for the Toronto area, is that putting a penalty on to the size of the lot will affect development particularly outside of Toronto. There's a lot of sprawl, a lot of good farm land and a lot of good land around Toronto that's being frivolously spent with small homes on larger lots. That kind of low density is expensive to administer.
It's expensive to run public transit through low-density neighbourhoods. It's expensive to run fire and ambulance and any kind of service you want to look at. The higher-density urban neighbourhoods are the ones that are easier and more efficient to administer, and that should not be penalized. If anything, you should penalize the opposite, the inefficient.
A unit assessment system can be geared to penalizing the inefficient use of land instead of what is apparently going to be, for me, a very expensive system. When you talk about the savings in running a system, there are no savings to me. My taxes will double. That's not a saving. I can't accept the system that's going to save money by costing you twice as much as I've been paying.
I want to pay a fair amount of tax and I believe I'm within a reasonable range compared to other taxes within Metropolitan Toronto. Likewise a small home out in Scarborough, a similar-sized lot and a similar-sized home, would assess quite a bit lower, and that similar home far out would be taxed considerably less.
Municipal tax is a tax for services delivered; it is not a form of income tax. Income tax is a tax that should be restricted to the federal government, and the fact that the province shares income tax rights with the federal government doesn't mean you can download income tax to the municipal level.
I also own a business in North York. It's a small furniture business. I pay taxes up there and I pay business taxes up there and it's based again on the floor area, the front footage and the usual formulas. I want to know what my business taxes are going to be next year. I want to know, when my lease is up, should I run to Vaughan? I don't know. I want the numbers. We've asked for numbers before. The numbers have not been forthcoming. I'm led to believe that they don't exist, and if they do exist I'd like to know why they're not being released. This is supposed to be an open government. This is supposed to be a democracy.
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Speaking of democracy, the people across Metro voted four to one that they wanted to hold this back, they wanted to get this whole mega-package right before making a change, because making a change from one bad system to another bad system is not what this government was elected to do.
I admit that the present form of property assessment in Toronto has fallen apart. There are all sorts of inequities that have to be balanced, and it's going to be a difficult job to recommend to the council and the Premier what package to go with. But it is important, the most important thing for this committee, now to look at these issues and make the strongest recommendation possible to allow for fairness, and the idea that there'll be a reserve fund that my taxes will eventually go to an unfair level doesn't cut it with me. I want my taxes to stay at a fair level as long as I choose to live in that house. My neighbours by and large feel the same way. Their taxes are going to go up just as much as mine.
There's one other thing that I feel should be pointed out here. In speaking to Crombie and speaking to Golden and speaking to the various other experts, they all recommended that a greater Toronto service board be first set up to look at the various issues that affect the GTA, whether that's economic development or public transit, police, whatever issues they may choose to accept at the greater Toronto area level. After that GTSB is set up, then and only then should the final changes be made, the amalgamations and consolidations of smaller municipalities into larger ones.
There will be several cities in the GTA. They will not become just one city, and the fact that Metropolitan Toronto, as it's known now, is going to become consolidated into one is probably just going to lead to some other inefficiencies. I understand that's a different bill, and there's really no point to going into that now, but again with this whole package of megacity, for me as a resident of the Bathurst-Davenport Community Association, it is important that I be able to maintain some kind of contact with my city councillor because of all the various development pressures and urban issues that go on in a very compact downtown neighbourhood. I don't want to lose that contact through having less representation, because my new council will represent three times the ward size, going from roughly 20,000 people in the ward to 50,000 or 60,000.
The bottom line: I don't want my taxes to more than double.
The Vice-Chair: We can leave some time, Mr Cassel, if you choose, for questions from the members of the committee.
Mr Cassel: Certainly.
Mr Pouliot: Thank you very much, Mr Cassel, for telling us your story, and through that, the story of pretty well all the others. You don't know what your taxes will be, but on account of reassessment -- it doesn't matter whether we call it market value or actual value, reassessment or assessment -- your taxes are likely going to go up because of your location and because of the philosophy of where you live and you will be one of the losers taxwise. By how much?
We are at a stage, since the revolution is advancing on so many fronts, where we don't know the ramifications, hence the anxiety that leads to a lot of question marks. There are a lot of rumours that you hear and some of them are just that. Others take on extraordinary proportions. If I ask the question, what is operating and what is capital, eight and a half months before the implementation stage they're still not sure.
On all those fronts in the relationship with the municipalities, they're talking with AMO, and all those things are yet to be concluded. This is what scares me, and I, like you, am saying: "Look, you've shown what you call courage. Maybe it is that, but I'm asking you to put the brakes on. Don't put so much on the plate so I can understand what you're doing."
Mr Cassel: The numbers I'm working with -- either Peter Tomlinson from the city of Toronto or John Bossons has given me numbers -- are that my taxes will be somewhere between 1.3% and 1.5% of current assessed value, and with the welfare downloading if that other side of the package goes through, that could add 25% to 35% on top of that; call that 1.4%.
The typical home in my little area, that little home that anywhere else would sell for $110,000, because of the land value there the homes in that area are ranging from $200,000 to $250,000 and $275,000. So if you take $250,000 at 1.4%, you get an accurate idea of what the taxes will be. Those are the numbers those professionals have crunched out, so I know that my taxes will go to about $4,000 a year from that percentage number.
Mr Pouliot: My God, we're governed by bandits.
Mr Spina: Thank you, Mr Cassel. You have many points that I could probably spend 15 or 20 minutes talking about, but I just wanted to ask you, do you know if you've bought anything on a market value-type basis?
Mr Cassel: Everything I buy is going to market value.
Mr Spina: You talked about unit value earlier, and I guess the point I was making was that, if I wanted to buy a 1992 Chevy and it had 40,000 kilometres and I bought it from a Chev dealer, it would probably have a fairly good market value. If I bought a 1992 Chevy and it had 150,000 or 200,000 kilometres on it, obviously I would be paying considerably less -- same car, same engine, same amount of space, same four tires.
The question I'm coming to is that if you want to compare looking at the value of a property based on its size, like a lot, like a house, versus what its market value is, there's a significant difference. I agree with you and I understand. I also have the other perspective. You're a businessman. I listened to you I suppose tongue-in-cheek humour -- I know you were being a little facetious about moving to Vaughan as a businessperson; I would have preferred that you come to Brampton. What I wanted to say was that I could also facetiously say to the city of Toronto, thank you for giving business and industry the gears with high taxes over these years and deliberately keeping the residential taxes unrealistically low, because you chased all the business out of the core of Toronto to the suburbs. Not you personally, of course.
The objective here is that we don't want to see that hollow core take place in Toronto, because that's what's happening from a business perspective, and that places an undue burden on the individuals, on the residences. All I wanted to say was that we're just trying to right it and we feel that this is probably the most opportune way to do it. By the way, the numbers you were seeking: You talk to Ms Golden. Look at her report. She's done the analysis and the assessment.
Mr Cassel: Could I just make one quick comment to that? When I drive that Chevy or Cadillac, the price of gas is the same. They don't charge more per gallon because your car is nicer. You buy the car you choose. The price of gas stays the same.
Mr Phillips: I just want to follow on Mr Spina's comments because I think they're important. I have here the campaign document from Ms Bassett. You can't read it but I'll read it for you. This is what Mike Harris said about market value before the election: "The policy of the PC Party has always been that we will never" -- that's in bold there -- "impose market value assessment in Toronto. We remain firm in that position" -- firm. As a matter of fact Mr Leach said, "My party and I will never" -- underline the word "never" -- "support the imposition of market value assessment in Metro Toronto."
I'm curious as to what you would think led Mr Harris before the elections to say that and after the election to say that he wants to impose it?
Mr Cassel: I will answer that question in an odd sort of way. I voted Conservative because of the promises that were made. One of the other promises that was made was that the Conservatives would run an open government, that they would enact legislation to allow referenda, and that after they had that legislation around referenda they would follow that. In fact, the referendum Toronto ran this spring was only because of the legislation the Conservative Party passed last year.
Seeing as it's their own legislation that they're ignoring, I have no answer for why they would also ignore their other promises.
Mr Phillips: It seems quite curious, because it was categorical in that "I would never"; I mean, it isn't just "not in the foreseeable future." "Never" is long time and that's what Mr Leach and Ms Bassett said. It just strikes me as odd that suddenly a 180-degree turn has taken place.
You've indicated that the net result for your property would be a fairly substantial increase in taxes. Had you been aware that they were going to, dare I say, flip-flop on this promise, might that have influenced how you might have voted?
Mr Cassel: Oh, absolutely. I don't have any particular political stripe. I try to vote for the politician who I believe will suit my interests the best. I'm afraid I've been misled.
The Vice-Chair: Thank you Mr Phillips. That concludes our time. Mr Cassel, thank you very much for your presentation. Have a good evening now. Thank you, members of the committee. That's our last deputation of the day. I will be adjourning this committee until we reconvene tomorrow morning at 10 am in the same room. This committee stands adjourned.
The committee adjourned at 1702.