FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
SOUTH EGLINTON RATEPAYERS AND RESIDENTS ASSOCIATION
ONTARIO FEDERATION OF AGRICULTURE
TAXPAYERS COALITION (PEEL) ONTARIO
TORONTO ARTS COUNCIL TORONTO ARTSCAPE
FEDERATION OF METRO TENANTS' ASSOCIATIONS
ONTARIO AND TORONTO AUTOMOBILE DEALERS ASSOCIATION
CONFEDERATION OF RESIDENT AND RATEPAYER ASSOCIATIONS
CONTENTS
Thursday 10 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
Toronto Real Estate Board
Mr John Vail
Mr Fareed Khan
Mr Von Palmer
South Eglinton Ratepayers and Residents Association
Mr Harold Pidduck
Ontario Federation of Agriculture
Ms Mary O'Connor
Mr Dave Older
Mr John Hogg
Taxpayers Coalition (Peel) Ontario
Mr Blaine Mitton
Toronto Arts Council; Toronto Artscape
Ms Anne Bermonte
Ms Susan Wright
Federation of Metro Tenants' Associations
Mr Howard Tessler
Ms Barbara Hurd
Canadian Taxpayers Federation
Mr Paul Pagnuelo
Sheraton Centre Toronto Hotel
Mr Dave Cocks
Ontario and Toronto Automobile Dealers Association
Mr Bill Davis
Ms Barbara Hall
Ms Kay Gardner; Mr Howard Joy
Howard Johnson Plaza-Hotel
Mr Bill Durnford
Confederation of Resident and Ratepayer Associations
Mr Dale Ritch
Mr Brian Maguire
Mr Michael Opara
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)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Mr Jerry Richmond, research officer, Legislative Research Service
The committee met at 1001 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.
TORONTO REAL ESTATE BOARD
The Chair (Mr Ted Chudleigh): Welcome back. I thank the committee for being prompt in these difficult days.
We welcome now the Toronto Real Estate Board, Mr Khan, Mr Vail and Mr Palmer. Welcome to the standing committee on finance and economic affairs. We look forward to your presentation. We have 20 minutes together; we'll fill any remaining time with questions.
Mr John Vail: Thank you, Mr Chairman, members of the committee. Ladies and gentlemen, my name is John Vail, and I'm a director of the Toronto Real Estate Board. I'm sure you know the two gentlemen on either side of me, Fareed Khan and Von Palmer, respectively the board's policy adviser and policy analyst for government and legislative affairs.
I would like to start out by noting that reform of municipal finance is long overdue; it is broken and needs to be replaced. The Ontario government started the reform process in the 1970s when it took over responsibility for property assessment. Not since that time has any provincial government had the political will to complete the process by implementing a uniform system of assessment across Ontario.
In light of the province's decision to reform Ontario's convoluted system of municipal finance through Bill 106, the Toronto Real Estate Board would like to commend the government for having the political will and courage to undertake this initiative. We believe that a uniform system of tax assessment is crucial to the success of any property tax reform effort. We feel that Bill 106 will accomplish this by implementing a consistent, uniform and modernized system of municipal assessment across the province. In addition, the bill addresses the important issue of keeping the system up to date by undertaking annual reassessments. This will avoid the problem of huge variations in assessed property values that occur under the current system where reassessment takes place every few years, if at all.
In general, TREB is pleased with the principles outlined in Bill 106, since they attempt to address the following problems:
(1) Currently, we have a fragmented property tax base where inconsistent and outdated approaches to property tax assessment among adjoining municipalities have caused cost-sharing inequities and created competitive disadvantages among municipalities trying to attract and retain businesses.
(2) The high level of business property taxes, especially in Ontario's economic heartland, Metro Toronto, which has resulted in businesses carrying a disproportionately large share of the local tax burden.
(3) Property assessments which have resulted in values that are based on the highest potential future use of the property as opposed to the current use.
(4) The concern of seniors and those on fixed incomes facing potential property tax increases under the new system.
Other aspects of Bill 106 address several issues which were raised by the Toronto Real Estate Board in its submission on property tax reform to the Golden task force and the Who Does What panel. These include the issues of education, property taxes, the use of variable mill rates and the use of rental values to calculate property taxes. Given the limited time, we'll refrain from commenting on these issues. If committee members would like a copy of those submissions, please notify us and we'll be pleased to provide them.
Notwithstanding our general support for Bill 106, the Toronto Real Estate Board does have specific concerns with respect to the phase-in provisions, possible implementation of higher taxes on the sale of a home and the definition of "current value," and we would urge you to consider some of our concerns.
First of all, on the phase-in: Under the provisions to implement actual value assessment, the municipalities would be given the option of phasing in the new taxes over a time period not to exceed eight years. We disagree with this provision, because it will likely result in a patchwork system of assessment, in our view. For example, cities or towns A, B and C are located within the same region, sharing common boundaries. City A may decide to phase in the tax over eight years, B would phase it in possibly over five years, and C decides to phase it in over three years. Obviously, you then have a situation where each city has a different assessment base, and it would in some ways re-create the situation that exists currently. In addition, many municipalities may be likely to use the provision to put off a phase-in of increases, or in fact decreases, until the last possible moment, thus negating the advantage which was intended by the phase-in concept.
With respect to the phase-in provisions, we recommend that the bill eliminate municipal discretion for phase-in and set a standard phase-in time period of eight years for all municipalities, thus allowing for an evenhanded period for all residents and businesses.
Second, on the possible implementation of higher taxes upon the sale of a home: We're concerned that the bill could be interpreted to allow for higher tax levels to come into force when a home is sold even though the sale might take place before the end of the eight-year phase-in period. We are concerned that this provision will negatively impact those selling their homes within the eight-year period.
We recommend that any phase-in of tax increases on a home be maintained for the eight-year phase-in period, even though the home may be sold during that time. We believe this to be fair, and would maintain a level playing field for all homeowners, whether or not they sell their homes during the eight-year period.
On the definition of "current value," we are concerned about the definition and whether it captures the meaning of what was intended by the Who Does What panel. The objective of the current value concept was to eliminate the possibility of a speculative component entering into property assessments, particularly as it applies to business properties. However, in a discussion with individuals in the business community, we have discovered that there is a high level of concern that the proposed definition for current value may not be sufficient to grasp this intent.
Consequently, we recommend that a clearer definition of current value be included in Bill 106, such that it captures current use principles and applies them for all assessments for commercial-industrial properties.
That concludes my remarks, and I would be pleased to respond to any questions you might have.
The Chair: Thank you very much. That leaves us about four minutes per caucus for questions and comments. Mr Phillips, would you start us off?
Mr Gerry Phillips (Scarborough-Agincourt): Thank you. I appreciate the comments. As to your first two paragraphs, everybody says there's a need for reform, and most groups say they commend the government for the political will and courage. We're trying to make sure that it isn't recklessness we've got here, not courage. We are concerned, not because there is change, but that this bill has some fairly major problems with it. By the way, not one group to come before us hasn't indicated some significant concerns with the bill. The problem is that today is our last hearing in Toronto, we're on the road next week, we've got one day for amendments, and then it's gone.
I've got several questions. You indicate that you're pleased that this bill will address the high level of business property tax. Is it the real estate board's interpretation that it will move property taxes off business and on to residential? We don't see any municipalities that believe they can dramatically cut expenditures. Is that why you're pleased with the bill, that it does move taxes off business and on to residential?
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Mr Vail: No, I don't think that's quite the interpretation we had. Perhaps Fareed could comment on that.
Mr Fareed Khan: We all agree that the reform needs to take place. We don't believe, as it sits right now, that there will be a massive shift of property taxes from businesses to residential. In fact, I think for any municipality that contemplates that, it will be political suicide. However, what you will get is a more evenhanded or level playing field among all municipalities as opposed to the patchwork that exists right now.
In terms of business tax rates that municipalities levy, they are going to have to become more competitive vis-à-vis their neighbouring municipalities. For example, within Metro Toronto, which has generally higher tax rates within the GTA and which in many instances has caused a flight of businesses out of the core areas into outer municipalities or other parts of the province, those municipalities are going to have to rethink their levels of business taxes and possibly lower them to make sure the businesses are retained. With the provision that will be put in place in the bill, where you have the same assessment base and the same assessment principles across the board, they will be able to compete evenhandedly with, for example, the Mississaugas, the Vaughans and the Markhams.
Mr Phillips: That's helpful. So you see a reduction of taxes on business and therefore a shift on to residential.
Mr Khan: No.
Mr Phillips: There are really only two sources that I'm aware of.
Mr Khan: No, we don't see that there's going to be a shift on to residential. What I said was that municipalities would have to consider what their levels of business taxes are and try to make them competitive with each other. As I said, if a municipality decides to shift it on to residential, that's a political decision they'll have to take, but we don't see that happening because it would be a major political battle to undertake that. From our perspective, if we were aware of municipalities that were going to do that, we would be there fighting to make sure the residential taxpayer wouldn't suddenly be faced with a massive increase.
Mr Gilles Pouliot (Lake Nipigon): You and some other presenters have commended the government for facing the reality that things had to change. Sometimes in our sincerity, enthusiasm taking over, we go as far as to say courage, that it takes a lot of courage to endeavour a revolution in this context. I take your comments at par.
We've had several presenters, from different walks of life. At the municipal level, the presenters were of the opinion that the days of holding the line on municipal taxes or reducing them seem to have come to an end, partly because they don't know all the answers. When you don't know all the answers, you bag some, and I think it's a normal reaction: You put a little cash by, a little reserve. But those who have the information -- because what is being done in Bill 106 does not work in isolation; it is one of the components of the government's program. We have to factor these in as well.
You mentioned that it would be political suicide; that the municipal leaders would not have to call Dr Kevorkian, they would have sufficient ammunition to do themselves in. In any event, if push comes to shove, you would be there to referee, to help them, and those good deeds are well taken.
If you don't see the industrial and commercial sector benefiting from the removal of the business occupancy tax -- to me, I suppose, a tax is a tax is a tax. It has to come from someplace. This is not even revenue-neutral. We can play the shell game, but the bottom line has to come out the same: You need to receive the money.
We have indications that the money will be passed along, as much as possible by a sideshow, to those who are benefiting. If you benefit one day, the next day it's back up. If you don't have that facility by legislation, then you have to find the money someplace. The government is not going to give you a cheque. It doesn't operate that way. There's no money there. They've got to get $2 billion somewhere.
You state that many municipalities, because of other municipalities' competition, are likely on the one hand to go quickly, but you suspect that some will delay as much as possible. They will have the monetary conscience of their means. They will do what is necessary to make ends meet today, to give them the daily bread. The philosophy will not apply here. They might not have a choice to wait two, three or four years. They'll go and grab as much as they can because they need it. What is your response?
Mr Von Palmer: I would imagine that what you get into is the phase-in of a tax in terms of whether or not some might decide to phase that in more quickly than others. Our concern is more in terms of consistency. If you look at, say, the GTA, which really is a region state, what you're trying to avoid is to have certain cities going and phasing in very quickly over two or three years and then have others taking eight years to do that. Then you have some inconsistencies and some variations in terms of property taxes. I think that's what we were getting to as opposed to --
Mr Pouliot: But the three examples you've given are high assessment --
The Chair: Thank you, Mr Pouliot. I'm afraid we've expended your time.
Ms Isabel Bassett (St Andrew-St Patrick): Nice to see you again, gentlemen. Thanks for your positive comments and for your suggestions, I might add. They're worth looking at seriously.
I want to follow up on my colleague Mr Pouliot's remark. When you talk about the phase-in or the eight years, we sincerely believe that any differences between municipalities will be short-term and in eventually, say, five to eight years down the road, all municipalities will have phased in the system, so it won't be a patchwork quilt.
Why don't you subscribe to the belief we have that municipal politicians, who are in touch with their constituents, will not want to make it difficult for, say, the disabled or elderly people to maintain the home they have lived in for a long time? It is our wish that they'll be able to do so. What gives you the impression that municipal politicians, who usually react to what their people want, the citizens want --
Mr Vail: The problem with the total municipal discretion on the phase-in is that you could have completely different mathematics in different municipalities. One community could decide to phase it in over four years, maybe 10% one year and then a third, a third, a third in the next three. Another municipality could say, the way it is written, "We'll phase it in in the seventh or eighth year." It's not clear how the phase-in will be implemented. It leads to uncertainty for the homeowner and the business community. They cannot plan the levels of taxation that they will be faced with in the years to come because they don't know what the phase-in strategies will be.
Ms Bassett: I understand now. I thought it was the municipalities you were concerned about, allowing them the discretion to do it on their own rather than the province mandating the phase-in, mandating that this has to happen in X period of time.
Mr Khan: We were concerned about, as John mentioned, the consistencies. As long as you have the same principles being applied to each municipality so that, as John mentioned, the math is not different in one municipality to the next, then at least there is some way to plan. Also, for a business which has to operate over a large geographic area -- for example, in the GTA over many different municipalities -- they may have to take into account, as the bill currently stands, the mathematics in the different municipality differently, and that obviously is a business expense for them. One of the reasons we called for property tax reform in the past was to simplify things for business and their business operations, to lower their business costs.
Ms Bassett: Okay, thank you. That clarifies it.
The Chair: Thank you very much. We appreciate the Toronto Real Estate Board taking the time to make a presentation.
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SOUTH EGLINTON RATEPAYERS AND RESIDENTS ASSOCIATION
The Chair: We now welcome the South Eglinton Ratepayers and Residents Association, Mr Pidduck.
Mr Harold Pidduck: It's obvious that the real estate board hopes to get some business from me when you guys tax me out of my house.
Thank you, Chair and members of the committee, for this opportunity to speak. I am appreciative of the extra burden these hearings place upon you in the current circumstances. I will try to restrict my remarks to the bill under consideration since the other issues are being heard in other forums, but let it be understood that the South Eglinton Ratepayers and Residents Association regards Bill 106 to be at the heart of the matter.
On June 2, 1995, the Honourable Al Leach, in an election brochure distributed in his constituency of St George-St David, made the commitment that, "My party and I will never support the imposition of MVA in Metropolitan Toronto." Bill 106 imposes market value assessment, MVA, not only in Metropolitan Toronto, but in the rest of Ontario as well. All of the negative impacts of MVA which prompted the minister to make the commitment cited above, impacts such as destabilization of urban neighbourhoods, business districts and cultural facilities, can be anticipated now with this bill.
Bill 106 removes the term "market value" wherever it appears in the Assessment Act and replaces it with "current value." However, it is apparent from Bill 106 and the existing act that these terms are defined interchangeably. The significance of the term "current" is that under the existing Assessment Act updating of assessed values is a local option whereas Bill 106 makes updating of values mandatory province-wide.
According to the Assessment Reform Working Group, March 19, 1997:
"It is difficult to see how the government could impose MVA more effectively than by enacting Bill 106. The bill eliminates the existing local option on keeping values current. It mandates future MVA updates Ontario-wide. It thus violates the minister's clear and precise electoral commitment. If the planned reassessment is to have legitimacy for taxpayers, the government requires a new mandate before implementing it."
On the matter of property assessment, Premier Michael Harris could well reflect on the remarks he made in the Legislative Assembly on November 5, 1992, to the NDP government of the day when he asked:
"Why haven't you, instead of treating market value assessment in isolation, looked at it, as other issues should be looked at, in conjunction with the whole combining of impacts that are coming down the pike? Why haven't you understood that the heart, the core, of our capital city, of this province, of this country, is being threatened? It is being threatened every day. Why haven't you done an impact study on these changes in conjunction with the other changes that are happening?"
In short, Premier Harris, you do not have a mandate to impose MVA. If you now think it is the route to go, call for the election writs and run for re-election on a platform promising MVA, but we think the Ontario electorate would reject such a platform. Currently, with local-option MVA, municipalities with 70% of the population have opted not to keep values up to date.
Municipal Affairs Minister Leach wants to reform Ontario's property tax system using actual value assessment, AVA, or to use the latest appellation in vogue, current value assessment, and 1996 property values. He wants it in time for the 1998 municipal tax bill. It is the biggest reassessment project ever in North America, costing an estimated $61 million, for openers. This is at a time when there is immense pressure to cut our health care, social services and environmental laws. Province-wide reassessment involves the valuation of over 3.8 million properties, all within a time line of 18 months. Why has the government, which was elected on the basis of a commonsense fiscal platform, chosen to go with the highest-cost, most labour-intensive solution? It is clear that the assessment bureaucracy has one objective: to secure its own continuous employment.
For homeowners in north Toronto, the potential impact of the proposed AVA/MVA could raise property taxes by 75% or more. Any shifts of tax burden from other classes of property, ie, industrial or commercial, may affect residential taxes to an even greater degree. A conservative estimate is that the average SERRA taxpayer may have to pay an additional $100 per month added to his or her tax bill. Imagine the impact upon a retiree on a fixed income whose major wealth accumulation is represented in 1930s, 1940s and 1950s dollars. Seniors will not have the option of being a snowbird; they will be forced to join the greybeard colony huddled in Atikokan.
It is a moot point as to how far the $200 million recommended by the Golden report to ease the impact of tax reform on seniors would go. Furthermore, that protection would not last longer than eight years and the tax deferral would be subject to market interest rates, in effect imposing a reverse mortgage on their equity in their homes, clearly something that many seniors would regard with suspicion. British council tax, for example, affords seniors living alone a 25% discount on their taxes until their home is sold.
Another group severely affected by higher property taxes would be the young, first-home buyer burdened with heavy mortgages. Higher taxes would also discourage the multiplier effects of new home construction on the building industry, appliance and home furnishing manufacturers.
SERRA's preferred path to tax reform is through non-partisan consensus, which should not be hard to establish since the Liberals, NDP and Tories have all shown an interest in property tax reform.
Experts on the British Columbia actual value property tax system, which seems to have captured the fancy of Minister Leach, have some advice for the Ontario government poised to introduce it here.
"Go slow and do it right or maybe don't do it at all," says Stanley Hamilton, an economics professor at UBC, who attended a property tax reform conference in Toronto last November. "Why don't you set the year 2000 as the target to make property tax reform operational and work seriously towards that?" He adds, "The assessment of Ontario's four million properties has got to be a three-year job."
Edward Desroches, a member of the Vancouver Citizens Advisory Committee on Property Taxation, said that the actual value assessment system had a growing number of critics because it doesn't address the problem of very volatile values which can go up and down.
Andre Carrell, city administrator for Rossland, BC, said the biggest problem with actual value assessment is that it lets politicians off the hook.
SERRA affirms that reform is needed in our property tax system. The current system is not fair to homeowners, tenants, landlords and commercial property owners. Property taxes should be based on services used. The alternatives to MVA are now increasingly well understood and have been proven in other countries. These other countries originally had volatile MVA-based assessment systems but have developed innovative alternatives. In doing so, they did not sacrifice equity but, rather, reinvented it, with general acceptance by taxpayers.
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The jurisdictions which have been most successful in this regard are the UK, with council tax; Israel, with unit assessment; and California, with acquisition price assessment. In all three, taxpayers are protected from upward reassessment as long as they own their property, thus avoiding the single most disliked feature of MVA.
Anne Golden downplayed unit assessment for lacking progressivity. But progressiveness has not been a consideration of the Ontario government in its plans to bring in a 30% tax cut, a system which will clearly benefit most high-income earners. The proven alternative systems are lower in cost than MVA. The Ontario government has decided to implement MVA, but its commitment of resources would accord better with lower-cost alternatives.
It may well be that assessment reform is most readily achieved via local option. The local option of the past has been limited to whether the MVA is kept up to date. The local option of the future could offer a choice of proven assessment models from which municipalities would choose.
The choice of an assessment base should not affect a municipality's share of regional costs, and various means are available to ensure that this would be the case. Cost-sharing could be based on formulae other than assessment; for example, average income levels or user pay. Whether assessment shares are used, the long-standing equalized assessment system is available to achieve comparability.
What is needed most of all is a more in-depth understanding of assessment alternatives and a clear electoral mandate which would flow from that understanding. These objectives are within reach if Bill 106 is withdrawn.
What SERRA wants for the greater Toronto area are a fair tax system for all properties, accountable politicians, and a smaller, simpler government.
Historically: In 1991 the people of Toronto voted overwhelmingly to dump the noxious tax grab called market value assessment. In 1992 an attempt was made to move the tax mess on to the backs of Toronto taxpayers, but the government of the day stopped that. In 1993 another attempt to impose MVA was stopped in its tax-grabbing tracks. In 1994, 73,150 voters in Toronto decided to go it alone in the fight against MVA.
Now, on March 3, 1997, nearly 400,000 Metro voters said no to the mega-mess of which Bill 106 is a vital component. Respect that vote. The very least you can do is put Bill 106 on the back burner until the other issues are resolved.
At some point in time during the next couple of years, long after the whips are off, each of you will have to face your own constituents and justify your actions. As men and women of integrity, it will not be a satisfactory answer to say to the electorate that you heard their wishes but that yours was not the ascendant voice in caucus.
Thank you for listening to me.
The Chair: Thank you very much. We have about a minute and a half per caucus. Could you start us off, Mr Pouliot, please?
Mr Pouliot: Thank you for your presentation, Mr Pidduck, and thank you for mentioning Atikokan and the huddling practice that goes on there when it's minus 40. But I will have you know that we're not immune to enjoying the same parts of Florida that Torontonians and others have gotten accustomed to.
Mr Pidduck: I understand there are good bargains on houses to be had up there now that the iron business --
Mr Pouliot: Sir, you can't see the houses for the 4 by 4s and the snow machines.
You have been subjected to a litany of acronyms. They went from MVA to CVA and now, for convenience, I imagine, and I need your help, they call it actual value assessment of current value assessment. You've indicated that during the election campaign, when people were soliciting the support of the electorate -- you see it as a shell game, and people are beginning to see through the veil, that this kind of cheap trick wouldn't even rate in a third-class circus. Do you feel offended? If I were the minister -- I occupied four ministries when I was with the previous government -- I would have resigned. Do you believe that Minister Leach, having been caught red-handed, should do the honourable thing, while he has an ounce of dignity left, and resign? You've been deceived.
Mr Pidduck: He's determined to bull it through. Our own minister, Saunderson, was touting a balance sheet which showed that on the uploading and downloading, municipalities would have a slight gain of $50 million or something like that, when significant items were left out of that balance sheet, which meant that nearly a $1-billion deficit was involved.
Mr Pouliot: What are you going to do when you have no place to go with your --
The Chair: Thank you, Mr Pouliot. We'll move to the government side.
Mr Douglas B. Ford (Etobicoke-Humber): Mr Pidduck, on page 2 you mention the people not wanting to keep up the values up to date on the properties. I'd like to point out that if we left that system in, our fire departments, our police departments and everything else would be null and void. We wouldn't have any money to pay them.
Also, you mention on page 3, "whose major wealth accumulation is represented in the 1930s, 1940s and 1950s." Well, in the 1930s you could buy a brand-new car for $400, in the 1940s $900, and in the 1950s $2500. We're saying we have to keep up with the times, with the accumulation of value in the property of any asset, whether it be artwork, pictures, cars, diamonds, gold or anything else. Back in those times, you could buy gold at less than $10 an ounce, and then about 15 or 20 years ago it went up from $35 to 400-and-some-odd dollars an ounce.
I understand the seniors' position, but what I'm saying about it now is -- you've mentioned British Columbia in your speech. What they have done in British Columbia is put on a reverse mortgage; the government is loaning them money on their homes. The equity in their homes has gone from, say, a $2,000 or a $5,000 house -- in Leaside you could buy a house just after the war for that amount, and those houses now sell for $300,000 or $400,000. Now, you could take a reverse mortgage on that and keep your taxes up to date on that presentation.
We cannot leave things stagnant because it just doesn't work that way in our society. I would say, understanding full well that their incomes are very low but their equity is very high -- in other words, their wealth could be accumulated in many other things other than the property, but the property aspect is the thing that has to be kept up to date for maintenance costs, road maintenance, and everybody doing these jobs wants an increase in pay. I would like a reply to that, sir.
Mr Pidduck: If I had bought Bell telephone stock back in the 1920s, 1930s or 1940s, it has accumulated in value and I would have had to pay tax on the dividends.
Mr Ford: You pay tax all the time on stock, sir.
Mr Pidduck: But I'm being double-taxed, because not only have I expended money to keep my house in order -- over time, the winds of time have meant a new roof and so on and so forth. There has been accretion in value that has not been without expenditures on our part, my parents and myself.
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Mr Phillips: I have a couple of comments and then a question. I think we've heard from the Conservative Party the advice they have -- one is in the paper today -- and that is, "Sell." The other advice from Mr Ford, I gather, is, "Just put a reverse mortgage on and pay it that way."
At the start of these hearings, because we too are very concerned about the dumping of cost off the province on to property tax, we presented the numbers to the government -- you don't have them here, but they're in the record -- showing that the province is dumping $1 billion on to property tax. We said, "If you don't agree with these numbers, give us your numbers." Of course they haven't done that, because they know they are dumping substantial amounts.
This is part of a package, make no mistake about it. The dumping is part of it, and it is substantial. We have the numbers to prove it and the government has never -- we've been asking for weeks and weeks -- disputed the numbers, the $1 billion.
The government has been told, "You're very courageous to move ahead with this." We have not gotten one impact study out of the government. We're going to be asked to agree to this bill in a matter of weeks. We've got four-and-a-half more days of hearings and then we're going to have to agree to this bill. These are the most sweeping changes to property tax in the history of the province and we've been given zero, nothing in the way of how this is going to impact on businesses. We've done our own calculation that says small business is going to be hammered.
Mr Pidduck: A 100% or 200% increase.
Mr Phillips: Hammered, and in the absence of any numbers out of the government, we have to assume they agree that small business is going to be hammered.
Why would you think the government would not have told the people what the impact of this bill will be?
Mr Pidduck: Would the people have bought the Common Sense Revolution if the government had been straight up with what they intended to do? They didn't have a mandate to bring in megacity and mega-tax.
Mr Phillips: Do you think in your neighbourhood Mr Saunderson would have gotten elected if he'd said, "I'm going to amalgamate Toronto and bring in market value assessment"?
Mr Pidduck: No. In my riding, Dianne Poole of your party had the courage to go against Premier Peterson and cabinet and represent her constituents. This man says he hears us, but his isn't an ascendant voice in the cabinet.
The Chair: Thanks very much, Mr Pidduck. We appreciate your taking the time to make a presentation to our committee.
ONTARIO FEDERATION OF AGRICULTURE
The Chair: We now welcome the Ontario Federation of Agriculture: Mr Ketchabaw, Ms O'Connor and Mr Older. Welcome to the committee. We have 20 minutes to spend together.
Ms Mary O'Connor: Thank you very much for the opportunity to be here today. We're representing the Ontario Federation of Agriculture, a membership base of 40,000 across the province of Ontario. I serve in the capacity as the current vice-president of the federation. Dave Older is a dairy producer from the county of Oxford who has been working on this issue for about 10 years. Ed Ketchabaw is our researcher. We're here to respond to the Fair Municipal Finance Act, Bill 106, and I would request of the Chair that our brief be entered into the record. With those opening remarks, I'll turn it over to Dave Older.
Mr Dave Older: Thank you, Mr Chairman, for the opportunity to make our comments. I hope everyone here is aware of what OFA is, the Ontario Federation of Agriculture. With 29 affiliated organizations, 45,000 individual farmer members or thereabouts, and with 48 different locals it is an umbrella organization that certainly does measure the pulse of Ontario farmers and tries to bring their views to government.
We have for almost 40 years now been encouraging the government to undertake permanent legislative reform for farm land taxation, farm land and buildings. In the 1990s there has been unprecedented opportunity to make our views known.
The OFA believes that meaningful farm tax reform must include province-wide uniform assessment; a separate tax rate for productive farm assets -- farm land and outbuildings; removal of costs of services that do not benefit local ratepayers from the property tax base; and a long-term commitment from the provincial government for remedial grants to municipalities which encounter the significant shortfalls as a result of farm tax reform. Farm tax reform has a unique impact on the very rural municipalities.
The reforms which propose uniform assessment and limit tax rates on productive farm assets to the 25% or the 0.25 tax ratio are a major step forward towards equity in the tax system. It was first acknowledged in 1970 with the farm property tax rebate program. That was an administrative way to achieve taxation according to the benefit principle. We think this is a permanent legislative way of achieving the same thing, and therefore it is superior to the property tax rebate program.
The farmers of Ontario are generally pleased with the government's promise to implement it; however, the details linking remedial assistance to municipalities need to be brought forward. They need to be clarified and communicated to rural Ontario.
Bill 106, if approved by the Legislature, will amend the legislative authority for the property tax system in Ontario, and the amendments will profoundly change the tax system. We are encouraging you to take your time and to do the job right.
We know there are incomplete regulations and amendments proposed that we haven't had an opportunity to see. We're encouraging this government to give us the opportunity to see the amendments and the regulations in full before we give you our final comment and advice on this particular legislative initiative. In other words, take your time.
The specific concerns with Bill 106: First, how will farm property and value-added agricultural activities be assessed?
The classification of farms: Subsection 7(1) of the bill allows the minister to prescribe classes of real property. The current proposal instructs the minister to include a class called the "residential/farm." We're worried about the distinction between "res/farm" and "farm lands and managed forests." That distinction needs to be abundantly clear because municipalities will have a very keen interest in that interpretation. We're encouraging the government to be specific in regulation in making sure that the right properties get the right tax treatment.
The minister, in subsection 7(3), is given the discretion to define what is included in a property class, and we think that power is rather broad and may be a little vague. We're encouraging the government to rethink its proposal of having the minister have the discretion to define what is to be included in a property class.
The reason we think regulations are the appropriate place for that rather than some sort of further-down policy is that quality control and consistency of assessment are already a problem in rural Ontario. We do not want, as the municipalities gain further direction and control of assessment, a less and less rigid interpretation. In other words, we don't want a too-liberal interpretation of what is actually supposed to be defined and its application. That concludes those.
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The valuation of farm land: We think the treatment of farm land for assessment purposes now is reasonably fair in that farmer-to-farmer sales represent the bulk of it. We think some language around the words "used only for farm purposes" may be problematic, and it might be irrelevant in this bill, given that assessors are going to have the opportunity to hive off parts of the assessment and apply different tax rates. We wondered if "only" is now a redundant word in that particular part.
The Ontario Federation of Agriculture supports the current method of farm assessment and recommends that farm property continue to be assessed on its productive use and that the method for valuation should be included in regulations; in other words, much as it's being done now.
The Ontario Federation of Agriculture supports the current assessment rules for the farm residential unit and recommends that these guidelines be included in the legislation or in regulations. Again, we understand how the farm residential unit is treated now. We think it is fair and we would encourage the government to include it in regulations and in legislative framework.
The brief then goes back to the eligibility for the 0.25 tax ratio. It's really important that the government define eligible properties and we think the farm business registration is the appropriate tool to define properties that should be eligible for the 0.25. It needs to have either an owner who is a registered farm business owner in Ontario -- those criteria are held in another legislative statute, Bill 42 -- or it needs to be rented, in other words operated as a farm by a registered farm business in Ontario. In other words, it is a good policing vehicle to make sure that eligible farm lands are getting the right tax rate and that properties that ought not to get the 0.25 ratio don't. We think that kind of linked working ought to be included in regulation or preferably in the legislative framework.
How will the new assessment system treat farm lands under development? It is a major question for OFA. We have relied on the use rule that farm lands, so long as they are used for farm lands, be treated as farm lands by the tax system. We think the proposed legislation indicates that the power has -- I don't need to go through that. I don't want to burden you with too many words and I would prefer to give you more time to ask questions. But if there is to be a trigger mechanism to try to define or distinguish what is farm land from what is actual development lands, we think some triggers might be used. This is still tentative and we want to discuss with Ministry of Finance and Ministry of Agriculture and Food about what that trigger mechanism could be. While it may not be inside Bill 106, we're encouraging the government to continue discussions and allow us an opportunity to help direct policy in that regard.
Phase-in provisions: It gives municipalities the opportunity to exclude certain properties from participating in phase-in provisions or having the municipalities step outside of phase-in provisions. There are examples in the farming community -- for instance, the value-added perhaps in the Niagara winery dispute -- in which some properties may get pushed into another category either by a court ruling or a municipal board hearing from which very substantial tax increases might result. The 0.25 ratio notwithstanding, some real hits could occur. We think municipalities having that discretion may be heavy-handed and may not be very fair to individual property owners. The phase-in, if it's going to be offered, ought to be offered to all properties, and certainly to farmers in their value-added endeavours.
The Ontario Federation of Agriculture recommends that Bill 106 be amended such that municipalities be mandated to phase in any tax increases for all farm properties over the eight-year period. Further, the Ontario Federation of Agriculture recommends that firm rules be provided as to when phase-ins would cease to apply because of changes to the land or improvements. We're a little uncomfortable with the phase-in provisions.
Complaints: We are suggesting that the Ontario Municipal Board has worked relatively well, that it has a lot of highly trained, highly skilled people. We're suggesting that you reconsider setting the municipal board aside as part of the appeal process. We think there is some merit in leaving that option there, and if you change the appeal mechanism substantially, we suggest you change it in ways that leave it present.
The OFA recommends that Bill 106 should prescribe a fixed period to municipalities to object to a reassessment settlement. In other words, municipalities can't wait in the bushes forever before they come out and object to a reassessment, a successful appeal.
The OFA supports the current familiar mechanism to appeal property assessment values and recommends that the current appeal route be preserved.
Finally, the elimination of the business tax and the farm tax rebate program: This aspect is very important. We would not want to see the loss of business occupancy tax and the loss of farm tax rebate revenues to the municipalities encourage the municipalities to undertake special user fees, special levies, road frontage provisions; in other words, try to recapture into their revenue base what they have lost in business occupancy tax or in farm tax rebate revenues. It would frustrate one of the stated objectives of this bill.
We think if you're to avoid having that problem, you have to either prohibit municipalities from undertaking those activities or you need to make sure that the community investment funds are clearly enough identified that the incentive for municipalities to undertake that activity won't be there. In other words, if they have the incentive and they have the legislative authority with oncoming bills, it may frustrate your objective. We think you need to pay close attention to that.
The powers given to municipalities: The OFA recommends that the government of Ontario, as much as possible, incorporate the guidelines around assessment of property values for tax purposes into the legislation and regulations.
We understand that municipalities are going to have a larger role in assessment. They're going to be put on a board that in some ways gives direction to the assessment function. I've read enough old tax studies that go back to 1970 to know what went wrong with assessment in the 1970s and to understand that we do not want to repeat those mistakes in 1997. The OFA is not opposed to the transfer of assessment; we are merely stating that we want that to be independent from municipalities such that the assessment function remains clear and unbiased and fair. We want the opportunity to consult with government on that. That is outside of the Bill 106 framework, but it is all part of your many legislative initiatives and it's our first kick at the cat. Let's not go back to 1970 with assessment and get that part wrong.
I finish off the brief from OFA by restating that we think the 0.25 tax ratio is fair and appropriate. We think that in 1970 the government undertook an administrative way to change the tax system so it better addressed the services farmers really consume on land and buildings. We think that municipalities levying residential mill rates on farm land in 1997 is taxing farms far beyond the services they use and far beyond farm land's ability to pay. For those reasons, we hold that a 0.25 tax ratio is fair and appropriate. I'd answer any questions you've got about where it comes from, the origin, because it does go back to some of the review of the farm tax rebate program.
Ladies and gentlemen, thank you for your time.
The Chair: Thank you very much, Mr Older, for a very interesting presentation. For the members' interest, I understand that the Speaker ruled to uphold the ruling the Chair made earlier. I'm not going to go into that on this person's time. We have about a minute each for questions.
Mr E.J. Douglas Rollins (Quinte): Thanks for your presentation. I've had a farming background myself for most of my life. One of the things that concerns a lot of farmers, and you people probably are involved in it too, is that even with the 0.25 ratio, which is a way of balancing it out, when there's a lot severed off farm land, when the farmer severs that and all of a sudden the taxes on that lot basically equal the taxes on the whole property, that becomes a very high problem for some of the farmers, particularly when they severed five or six lots. They get very upset. They're still working that field even though the lots are there, and they object strongly to paying that extra tax. Also, when you have classification of a woodland, to remove it from that woodland classification seems to also trigger a problem. I know you've got some trigger mechanisms.
The other thing is that where you've got a lot of municipalities that are basically 90% farm and rural land, they're going to be under heavy pressure to raise enough taxes to sustain that. How do you feel about those concerns?
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Mr Older: I definitely agree that municipalities that have an overwhelming farm assessment base are put at serious risk, and this is the opportunity for municipalities to make the argument to government that it is a provincial interest to preserve and conserve the natural environment, the farming environment included. It is a provincial interest. It is at stake. We all have something at risk here, even if you're not a farmer. Anybody who sits down to the table three times a day has something at stake in trying to preserve good farm land.
On the issue of severed lots, it is my understanding -- I would stand to be corrected -- that as long as the severed lots continue to be farmed and are cropped, they are for all intents and purposes assessed as farm. It is a point that you and I or others need to clarify. It brings to mind that there are some inconsistencies out there, and some real rigour needs to be applied by farmers in trying to make sure they're being treated fairly.
Mr Phillips: A very well done brief; obviously, the OFA and you in particular know your stuff.
Everybody says that the government's got a lot of courage for proceeding with this thing and what not. Our concern is to try and distinguish between courage and foolhardiness. As we look at the bill, there are some major issues that run the risk, in their haste -- we've now got four a half days left of public hearings, we're going to have one day of debate on the amendments, and then it's gone. That's what we're up against in opposition.
You make many good points, but I'll focus on your point about the government enacting a long-term commitment to compensate rural municipalities. The government did two things in this bill. They said to the farm community, "We're gong to be really nice to you and we're going to give you this 25% break on property taxes." What they didn't mention publicly -- you knew this -- was that this gift came straight from the municipalities, because they are going to lose all that revenue. The second big thing is that they said to the business community, "We're your friend; we're going to eliminate the business occupancy tax." That's 11% of the revenue, but that wasn't the province's to give; that was municipal revenue. They've given away two things that weren't theirs.
We are going to be forced to pass this bill before the government will give you, or us, that commitment on the long-term commitment. We've done all the number crunching, and the province is unloading $1 billion on to the property taxpayers, and that's after their funds. We've put all the numbers out there and we've said to the government, "If these numbers are wrong, prove us wrong." Of course the government has not proven us wrong; the figures are right.
The reason I raise this for the federation is that I'm afraid we may not be able to get the assurances you want prior to the bill being passed. Do you have any recommendations for us? Should we be encouraging the government to hold up a little bit on the bill until you get those assurances? I don't want you endorsing action that's going on in the House, but so you have any suggestions to the government saying, "Listen, we need these assurances before you pass the bill," or should we just stand aside and let the government pass the bill?
Ms O'Connor: I'm going to let Dave respond to that, but I would just like to comment on your terminology that "They're very nice to farmers." I agree that we have smiles on our faces, but I would also comment that the government of the day could also be described as being very smart in promoting some efficiencies. What's gained by getting rid of the farm property tax rebate, which in itself was a remedial measure, is smart. Yes, it's nice for us, but it's more reflective of the government of the day finally taking some action that needed to be done for a long time.
Mr Phillips: I agree with that. I'm just saying that unfortunately now, the municipalities have --
The Chair: Thank you very much, but we really are running out of time on this issue.
Ms O'Connor: I want Dave to have the opportunity to respond to that.
The Chair: You can make some brief comments, Mr Older.
Mr Older: This bill requires adequate discussion and I think OFA will need to have another opportunity to comment on regulations when they're available in full and an opportunity to see amendments as well. It's critically important that we get it right.
Mr Pouliot: Thank you very kindly. Obviously, you convey the confidence of knowledge, technical and every which way. You put the point across very well. But there is no windfall here; there are only winners and losers. What you gain on the farm, you lose on the house, in many cases.
In terms of the phase-in, it's a nice theory, it's food for the boudoir and the gallery: "We wish they will." But governments at the municipal level will be under a state of seige, 10% to 15% less, because this is not revenue-neutral. Some will call it gouging. They might have to sell the grader that leads to your farm on the main road and you might have to pool your money to buy a grader.
Mr Older: On the question of this whole framework of reform in assessment, we think it is an important enough issue that the government should proceed. Not to proceed with uniform assessment across the province would be a foolhardy thing. It is long overdue.
On the issue of community investment funds, municipalities should apply and get the funds they need when they are holders of resources like agriculture, managed forests and conservation lands, in which the entire community of Ontario has a stake. I think there is enough power in the argument to put it into an enshrined framework of legislation. If people suggest that a legislated rebate mechanism is possible, a legislated community investment fund is also possible. In fact, I would strongly encourage this government to consider those options to try to give municipalities some stability over the long haul.
I would not discourage this government from the initiative of property tax reform. It is overdue. The framework is generally right. Our support for it is conditional; we really have to work on some of the details.
The Chair: Thank you very much. We appreciate the federation's well-thought-out and complete presentation.
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JOHN HOGG
The Chair: We now welcome Mr John Hogg to the committee. We have 20 minutes to spend together.
Mr John Hogg: Good morning. My name is John Hogg. I have been involved in the assessment issue since 1992 when as president of the Oakville Chamber of Commerce I became concerned about the impact on our members of region-wide market value assessment being implemented in 1993 using 1988 values.
Since that time, I have acted as co-chair of the Oakville citizens' committee on property tax reform. Currently, I am co-chair of the citizens' tax committee and a partner in the Appealing Group, a property tax consulting business assisting property owners in obtaining fair and equitable treatment under the assessment act. I have also spoken at numerous ratepayer group meetings across the GTA.
I appreciate the opportunity to discuss Bill 106, the Fair Municipal Finance Act, with you today.
I would like this committee to note five key points:
(1) The proposed assessment system is not stable.
(2) The move to the proposed assessment system is bureaucracy-driven.
(3) A local option of different assessment systems would bring about efficiencies and reduce the cost of assessment.
(4) The competency of the Ministry of Finance's property assessment division, PAD, is less than excellent.
(5) Manipulation of data to achieve desired results does take place.
Stability: Let me first state that my preference in an assessment system would be that it not be based on current value. Value is erratic and, as has been seen, can move up and down swiftly. At a meeting with the Honourable David Crombie, I pointed this out and gave him a study we had conducted on sales of similar properties since 1975 in several homogeneous neighbourhoods within Oakville. We analysed the sales within each neighbourhood and then allocated a total amount of stable revenue requirements, thereby eliminating the impact of inflation among all the neighbourhoods.
The graph illustrates the percentage change in the tax requirements from each neighbourhood. You will note that the graph starts in 1979. This is to obtain the increase or decrease from 1975 to 1976, and then to apply the three-year rolling average suggested by the GTA Task Force and Who Does What. As you can see, stability is not evident even when the three-year rolling average is utilized. Under Bill 106, three-year rolling averages won't even start until the year 2006.
I'm the first one to admit that this study is less than perfect. However, to the best of our ability and as a volunteer committee, we submitted this with a request to work further with the Ministry of Finance to ensure it accurately portrayed the proposals of the GTA Task Force and the Who Does What panel. We are still waiting for a reply.
Labour-intensive: The move to annual updates is a bureaucrat's dream come true. In what better way could the property assessment division ensure a never-ending workload? It has been stated the new system will use computer-generated models which will easily update the assessment system at the push of a few keys.
While I applaud the PAD for making the leap out of the dark ages and into computer-assisted mass appraisal systems utilizing multiple regression analysis, it will not eliminate the need increase the bureaucracy. Indeed, just the opposite will be true. This will be especially true during the implementation period, where some $62 million will be spent.
While on the topic of the implementation, I offer a brief chronology of the events that have taken place. On September 10, 1996, the assistant deputy minister of finance in a letter to all regional commissioners stated, "The ministry is aware that the division cannot deliver reassessment in the time frame set by the government and still carry out day-to-day assessment operations, with its current staffing level."
On September 11, a request for qualifications, the RFQ, appeared in the Globe and Mail.
One week later, on September 18, 1996, the property assessment division held an RFQ meeting, with no presentation whatsoever. The meeting started at 9 am and adjourned at 10:10; it was scheduled to adjourn at 12 o'clock. Attendees included the BC Assessment Authority, Coopers & Lybrand, KPMG, Hurontario Assessment, Royal LePage, IBM, OPSEU, Bell and Howell, and Arthur Andersen. Some of the comments that came from the attendees were:
"The meeting had a sour tone."
"No presentation was given. They just opened the meeting asking for questions."
"We are concerned about the doability of the project. Our best course of action is to refrain from bidding."
"We have a level of expertise to offer that wasn't being requested."
"Cooperation from MOF is lacking."
"We are architects rather than builders, and the plans were all set before we got there."
The deadlines for submission of the RFQ came on October 7, 1996. Few attendees responded to the RFQ, preferring not to work on what was perceived to be a doomed project. The RFQ effectively exposed the property assessment division's operations to its peers and the request for the private-public sector partnership was declined by peers.
Cole Layer Trumbell Co, the oldest and largest private sector mass appraisal firm in US, submitted an RFQ with the intention of keeping its name in the hat. Its services were later rejected by the property assessment division.
I'd like to touch on the local option: There has been much discussion about various assessment systems for some time now. MVA, AVA, CVA, UVA, UA, APA etc have all been bandied about. In some areas of the province, one system might be better suited than another. At one time, when unconditional grants from the province to the municipalities were based on the amount of assessment, it would have been ideal to have all municipalities assessed the same.
However, as these grants continue to decline, so does the province's reliance on a measure to allocate them. If a wealth measure is needed, there are alternative ways of obtaining one. Statistics Canada offers numerous measures that could be employed at little or no cost to the provincial or municipal taxpayer.
Without the need for a province-wide assessment system, it becomes possible for municipalities to have different systems of collecting their revenue requirements. If the province were to offer a menu of assessment systems to municipalities, the most efficient and cost-effective method would soon become the most prevalently used system. Bill 106 proposes that after 1997, the cost of assessment be returned to the municipalities. Why not give them the opportunity to become as efficient as possible? If the government desires a unified system across the province, a sunset clause could be placed on the various menued systems, with the most used system becoming the government's choice.
Besides reducing the costs of both the assessment system and the appeals process, this would have the effect of bringing market disciplines to the decision-making process, surely something all members would applaud.
Competency levels: Last week I attended a seminar delivered by the Law Society of Upper Canada entitled Property Tax Assessments: New Structure, New Opportunities. Speakers included the Honourable David Crombie, the assistant deputy minister from the property assessment division, the chair of the ARB and Her Worship Hazel McCallion, to mention a few.
Listening to the bureaucrats and trying to wear the hat of people with little inside knowledge of the assessment system, one could easily be convinced that the proposed legislation would be fair and equitable. Indeed, Councillor Kevin Flynn, who spoke to you yesterday, was a newly elected councillor in the mid-1980s when the town of Oakville was debating the implementation of MVA. He was convinced by the ministry officials that MVA was best for Oakville. It was not until 1992, when the region of Halton was trying to implement region-wide MVA and he was forced to look into the issue a little deeper, that he realized how flawed market value really is.
Being involved in representing clients at the Assessment Review Board, it has become apparent to me that one's success often revolves around which adjudicator is presiding over the hearing. Standards and quality of the service being provided are extremely varied. This must be standardized.
We routinely analyse the way in which the PAD completes their mass appraisals. In so doing, we continually run into inconsistencies. The broad-brush approach taken often does not take into account local factors affecting real estate values. Data on individual properties will, more often than not, be incorrect. Indeed, it is often very difficult for us to understand the methodology used by the assessors. I pity the layperson trying to understand how his or her assessment was determined.
Apparent manipulation of data: The land value is an ever-increasing portion of the total market value. As such, the need for accurate land residual studies has increasing importance. The PAD routinely completes these and checks them for accuracy using A to S, or assessment to sales, ratios. Having an average A to S ratio of plus or minus 5% is considered very good.
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All statisticians know that there are always samples within a data set not behaving like the rest of the population that should be removed from the analysis. Therefore, a great deal of care must be taken to ensure that the sample actually used represents the total population.
In fact, if one's only concern was to illustrate the accuracy of a methodology, one could simply pick the population that best illustrates the methodology as accurate. Let's suppose that all sales are analysed and produce a less than favourable average assessment to sales ratio. One could eliminate all the samples with less than favourable individual A to S ratios and produce a report illustrating the methodology to be a good one, at least on the surface.
Two members of OPSEU presented to you earlier this week and indicated that the assessors' morale was at an all-time low, that the timetable was too short for the reassessment project and that quality was being sacrificed for quantity. Placed in the situation of the assessors churning out these reports, where would you first turn to cut corners?
I would like to turn your attention to the first two pages of the appendix and review why some of the property assessment division's studies are deleted or included. You'll find that on page 2 of the appendix. This is a report the Appealing Group purchased from the property assessment division. In point form, I'll explain some of our grave concerns.
(1) PAD collects all the sales which take place in a homogeneous neighbourhood.
(2) PAD determines which sales qualify as willing seller to willing buyer.
(3) PAD deletes those sales which in their opinion are not willing seller to willing buyer.
(4) In this study, you'll find that 40 sales were observed by the ministry and 13, a very high percentage, were deleted.
(5) One deletion was because of "heavy fire damage at time of sale." It did not have any fire damage. The bank's appraisal doesn't observe any fire damage. The Oakville fire department didn't visit the property in the six months prior to the sale and a letter from the previous owner indicates that the only fire they ever had during their 40-year ownership took place in the fireplace.
(6) Five of the deleted sales were deleted because the sales questionnaire was not returned, leading one to assume that the other 27 sales returned the sales questionnaire. Not the case: Many indicated they did not and would not have returned the sales questionnaire.
(7) Two sales were deleted because of additions to a house. I spoke to the owners, who indicated that additions did not take place until about a year after the purchase and had absolutely no impact on the purchase.
(8) One sale analysed: $100,000 of renovations started prior to closing.
(9) In one situation a wife took a year off work to act as general contractor on renovations.
(10) One sale analysed was purchased fully furnished, without adjustment for the chattels.
(11) One sale didn't even take place.
With this information, one can only conclude the fox is looking after the chicken coop. By adding the deleted sales back into the analysis, the average land residual value is greatly reduced.
One of the recommendations from the Who Does What panel was that a monitoring body composed of membership from the Association of Municipalities of Ontario and the Ministry of Finance be established, a recommendation for which Her Worship Hazel McCallion rightly takes the credit. Last week, Mayor McCallion strongly criticized the deputy minister of finance and the AMO for not ensuring this recommendation had been taken more seriously.
The need for an independent audit of the property assessment division's work is obvious. If we are to obtain a quality assessment product, we must ensure that high professional standards are being employed.
Conclusion: In addition to keeping in mind the key points of this presentation, I ask the committee to complete one additional task prior to reporting back to the Legislature. Appendices 3 and 4 are a list of those firms who responded to the RFQ placed in the Globe and Mail on September 11, 1996, by either attending a meeting on September 18th or submitting a bid. Ask some of those who attended the meeting and did not submit a bid, or those who did submit a bid, to appear before you, either in person or by telephone. The guru of AVA, the BC Assessment Authority's commissioner and CEO, Tom Johnstone, did not submit a bid. Why?
You now have the tools required, appendices 3 and 4, to speak to those peers of the Ministry of Finance's property assessment division who did and did not reject its request for assistance. Please use them. Thank you.
The Chair: Thank you very much, Mr Hogg. That leaves us about one minute per caucus.
Mr Phillips: This is proving to be quite an interesting process. Probably everybody in Ontario has decided, "We've got to sell the old house; we're moving out." We're being asked to buy this thing, Bill 106, and we're being told, "You have to make up your mind really quick." In presentations so far, even though the thing looked good at the outset, the roof's leaking, the furnace doesn't work and now you're suggesting that the foundation's built on quicksand. Your presentation is quite serious. As I say, it sounds like the worst nightmare, which is that the very foundation the thing is being built on is going to slide away on us. Am I overstating the case?
Mr Hogg: No.
Mr Pouliot: I looked at two bills yesterday and last evening thought about the blind helping the lame; when that happens, they march forward. At 4 this morning, as I did more reading, they weren't marching very quickly.
There are 3.8 million units being assessed -- unprecedented; that's never happened on the continent -- and this has to be done in a period of less than 18 months, by April 1, 1998. A lot of it is contracted out in the hands of people who have never assessed before, with a very compressed, short period of training. As a professional, myself as a consumer, do I have reasons to fear? Would I be justified in feeling, as I speculate, that we could be in a major mess?
Mr Hogg: Yes.
Ms Bassett: Thanks for your presentation. If you think back, the province assumed responsibility for the property assessment on January 1, 1970, and did it in order to standardize assessment practices and to reassess all properties at market value. If municipalities were to be responsible for choosing their own assessment method, the province would revert to a patchwork of assessment models.
What would happen to all those homeowners who are beyond the borders of -- say two municipalities chose to have different assessment models. One would be assessed one way and one another. This would be unfair to them and it would go back to the unfair system we have today. It's a regression, in my view. What solution would you have?
Mr Hogg: My solution would be to put a menu of systems up available to the municipalities, and in a very short period of time, maybe three to five years, I think you would find that the most efficient and best system would be utilized by all the municipalities because they'd have to do that to keep their budgets in line. Put a sunset clause on all those systems and just pick the one that's most prevalently used. My phone number's on the front of the presentation. If you want to call me, I'd be happy to discuss it with you.
The Chair: Thank you very much, Mr Hogg, for taking the time to make your well-thought-out presentation to us. We appreciate it.
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TAXPAYERS COALITION (PEEL) ONTARIO
The Chair: We now welcome the Taxpayers Coalition of Peel, Mr Mitton. Welcome to the committee. We have 20 minutes to spend together.
Mr Blaine Mitton: Thank you. Good morning, everyone. My presentation isn't to do directly with Bill 106 per se, but it has to do with the philosophy that I see as important behind it. Thank you for allowing me to do this presentation on behalf of the Taxpayers Coalition of Peel.
First, it is wonderful to see a government willing to attempt to make changes in a province which has a great opportunity to be first-class but is loaded with debt from previous governments who have been gutless to take bold action. People with vested interests have had control for far too long, with no respect for those who have paid the bills nor for those who have had to compete in an international market.
As background information, there are some things that are very important and must be kept in perspective to ensure that our eye is on the target, and philosophically we know why change is necessary.
Our unemployment rate is still approximately 9.7%, while Ohio is 2.6%. We need to keep changing and cutting costs. We are not out of the woods yet. The US controls the interest rates. We cannot even compare US costs to ours, as we cannot afford the equivalent, due to our high unemployment and high tax rates.
We will have a $120-billion provincial debt before the deficit is under control. There is no room for complacency or wavering.
Canadians have seen their share of the domestic market eroded by more that one third since 1980. That's from the Alliance of Canadian Manufacturers and Exporters.
To understand this better, just visit Canadian Tire, Wal-Mart, Zellers, etcetera and look at the labels to see where the majority of our products are made. Obviously, we are not competing. In the real world, the consumers want the best value for their hard-earned, after-tax dollar and therefore buy product at the lowest cost. More and more, this is not from the Canadian manufacturer. Remember also that only a small percentage of our people will work with computers; the jobs are in manufacturing and those that serve industry. Maybe we can get some real job and wealth creation started if we get our costs in line and taxes lowered.
Proceed with removing education taxes from property taxes. This is important when one looks at the number of bankruptcies and tax arrears, in other words, the ability to pay. The province should have a far better ability to get education costs under control.
Municipalities can more readily take responsibility for welfare and subsidized housing. Maybe they will be closer to the action and do a better job of managing what they can afford. The rubber will get closer to the road.
To the issue of Bill 106: We know that property tax assessments are not fair and that some property owners are not carrying their fair share. Get on with actual value property assessment. It will probably need some improvement as time goes on, but it is time to get the job done. It does not need to be cut in stone, but it needs to change with the times, based on actual values. Get on with it: Do it, fix it, make it work. With computers these days, this should not be an arduous task, although, unless managed, some of our bureaucrats could make this a career. I suggest it be contracted.
The megacity should not be a big deal either, but by the time it is redesigned by some of our politicians, it may look like a camel. Get on with the megacity consolidation. The opposition parties should be ashamed of their recent hostage-taking of the provincial government. Taxpayers are fed up with this obstructionism and delay of change which can save us millions of dollars. Do some of these politicians still not understand that we will have a $120-billion debt, are non-competitive as a country, and need to get our act together? They have a responsibility to the people of this province.
Besides this Bill 106 on actual value assessment, which is a move to fairness, costs need to be cut in education, health and justice. The opposition parties appear to be more a part of this problem than the solution, by holding up processes that will help get our costs under control and allow us to be more competitive and create some jobs and wealth.
Let's get Bill 106 legislation passed and implemented now, not two years from now. It is time to move towards a system that is more equitable and will serve us in the future. At the same time, let's cut the costs so property taxes can go down for some and lessen the impact for those who have not been paying their fair share.
Stay the course. Get on with it. Thank you.
The Chair: Thank you very much, Mr Mitton. We have about five minutes per caucus for questions, and we are starting with the third party.
Mr Pouliot: I want to thank you for your presentation. You have a direct style about you, and one cannot help but appreciate this.
In terms of the latitude given to you, I respect you and your point of view in terms of being ashamed of ourselves. I won't prolong this, but we work within the rules; find yourself a riding and change the rules. That's fair game. That's the system in which we work. This very party, which is courageous by the account of many -- but I won't bore you by reading all the Hansards. You have better things to do with your time.
I would wish to have your opinion, because we all desire to have a balanced budget. I think it's commonsensical. If you cannot pay the bankers, there's very little possible. However, if you can pay the bankers, it give you more latitude, and this debt was accumulated regardless of political stripe. Nobody invented the wheel here. It's a cumulative process.
You have a commitment, and you say "cost." I think you're quite right that cost is always a factor. It's the glass jaw of every financial agenda of any government. You have an aging population, for instance, and that puts on taxes. The College of Physicians and Surgeons belongs to the best union in the world, so you have to reconcile that.
The government has an $11-billion deficit, and they say, "Yes, we'll make ends meet in the first term of office," and you encourage them to do that. But while you do this you must still provide services. It's easy to balance the budget; it can be done in one year if you dislocate. Why do you sanction a government that gives $5.4 billion in tax cuts -- and that's a choice they made. Doesn't it make more sense to take that $5.4 billion and apply it directly against the deficit, where it has 100 cents impact on every dollar, as opposed to keeping your fingers and your toes crossed hoping that, manna from heaven, everything is going to fall out right? The money will filter through, some of it, to Grand Cayman, some of it to Switzerland. What are your comments? This is bad economics. If you mean what you say, when you balance the books don't give me a tax cut; put it against the deficit.
Mr Mitton: I hear what you say. I'd like to comment on your first thing about the rules. It's time we did what is right, not who is right.
To go on to answer your other question, cutting taxes is like an investment. If I run a business, a manufacturing business or any business, when I do what this government has done, what they're really doing is investing in this country and our people. When you allow the people to have that kind of money, they spend it, it gets reinvested, we purchase, it generates new tax, new revenue. I don't have any problem with that approach. The revenue generated by the number of turns in which that money comes back into the system I would hope you'd look at and be serious about, because it is very important.
I work with China, I might just add, if you don't mind, Mr Chairman. I source North America for parts for China. We've got problems far more serious than even what I'm indicating. Our ability to compete is really a very serious problem, not identified by the parties in this country, I don't think. If anything goes sour on us, including interest rates, including more imports in terms of products, we have less and less ability to control where we are. The sooner we get our debt in line, the better off we will be, and we are not doing it. We're not taking action fast enough to make this happen.
Mr Ford: Mr Mitton, I agree with a lot of your philosophical point of view here. It's not easy and not perfect, what we're doing, but I believe we're on the right track. Being a businessman and extensively in the markets and different things like that, I understand why people invest in certain areas, because there's a return on that investment and there's hope down the road.
I firmly believe that in this Ontario and this Canada, now is the most opportune time to do these things and progress in this country, because our dollar is low. That's not hard and fast, because it could be like the lira and could go down to be worth half a cent. People are quite complacent here and happy with the status quo as long as the income is still coming in, but I say there's an end to that too. We have to get progressive, we have to get competitive, and that's what our government is trying to do. I agree with what your paper says, but again I stress that it's not perfect but it's a start in the right direction.
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Mr Mitton: I don't think you're ever going to get it perfect but I think you've got to get on with it. You've got to do it, fix it and make it work. What we're doing today is not perfect because we have a totally unfair assessment basis, and that's sad. I hope the people who are specific about these things understand and take that into consideration. You have to move in a direction that makes some sense, and you'll never be perfect.
Mr Ford: The opposition always says, "Slow down." I look at it this way: It's like travelling; do you want to travel on a Kitty Hawk or do you want to travel on a 747? You'll get there, get the job done and be back before they get off the ground.
Mr Pouliot: You're still with the horse and buggy.
Mr Mitton: You're creating the horse and buggy. Sorry.
Mr Phillips: I appreciate your presentation. My background is business too. I started two companies from scratch, with 300 employees. I have some idea of business. My background in business always was that if you're buying something, you do a little bit of due diligence on it. Maybe you and I have a different philosophy, but I tend not to simply go out and buy something; I look at it and make sure it's right. We're asked to buy this, the bill you're here strongly supporting.
One of my concerns about the bill, and I'm sure you're aware of this, is that it shifts tax burden on to small business. I think that's wrong, that it's going to hurt the economy, but I gather you're comfortable with that, that it doesn't worry you.
Mr Mitton: Part of my presentation has to do with cutting costs. I'd guess, if this all gets sorted out properly and the government is allowed to move forward in terms of cutting costs, it will not be so detrimental to those people who will have increased taxes in this, because the taxes overall will be reduced. That's what we've got to get to. We have to go in parallel with two different programs: one to cut costs, the other to get the assessment fair. These things need to happen in a parallel mode. I hope this government gets on with it and makes it happen, because we don't have a lot of time. I'm saying, with my Chinese experience, that our chances and our ability to create jobs, the way we're doing it, is very detrimental. You should think about it in terms of your children and your grandchildren, because their ability to get jobs is going to be very --
Mr Phillips: I appreciate that. The Canadian Federation of Independent Business said the elimination will harm small business, but that's not a problem for you.
Second, you're very pleased to remove education from property tax. As you know, the bill keeps education on the business property tax. I gather you're supportive of that.
Mr Mitton: I think the province has to get more control of the education system, because the school boards have not done a good job at that at all. I have an eight-year-old in school and when I look at what's happening in the US and what's happening in Canada and our quality of education, particularly relative to the costs, it's atrocious.
We need to get two things going: One, we need to speed up the computer technology and the computer programming that's available to teach kids these days, which is just amazing, compared to this child-centred learning business. That's a crock.
We've got to do a lot of things fast and in parallel or the 9% unemployment rate is going to stay there and possibly get worse.
Mr Phillips: I think 40 states and all the provinces in Canada now spend more than we do on post-secondary education. Is that a good idea, in your mind, or a bad idea?
Mr Mitton: I think we spend too much. Post-secondary students pay for a portion of that, so I guess you can ameliorate that somewhat. The primary and secondary education systems are what I'm more familiar with, and spending there is out of line completely.
The Chair: Mr Mitton, thank you very much for coming in and sparking a somewhat lively conversation.
Mr Phillips: You're bringing all these Chinese products into the Canadian Tire stores.
Mr Mitton: No, I'm not. I'm sourcing North America for products for China. I'm doing the reverse. I've got to tell you, it's a very competitive market.
The Chair: Thank you very much, Mr Mitton. We appreciate your time before the committee.
TORONTO ARTS COUNCIL TORONTO ARTSCAPE
The Chair: We now welcome the Toronto Arts Council, Ms Bermonte and Ms Wright. Welcome to the committee.
Ms Anne Bermonte: Thank you. I'm joined by Susan Wright, who is the general manager of Toronto Artscape.
Over the past three years, numerous reports and experts on urban issues have outlined the important economic, social and cultural contribution of the Toronto-based arts and culture sector to the city, the region and, by extension, the province. The GTA Task Force report demonstrated that Toronto's cultural assets are an important component of not only the quality of life and economic wellbeing of the city but of the whole urban region. As with other issues facing the GTA, the cultural vision of the Toronto region can only be considered in the context of creating and sustaining a competitive urban centre, an urban centre that competes as a destination for visitors, as a place to live and conduct business, as a place where the value added components of knowledge, creativity, design, information and idea-driven industries are encouraged and nurtured.
This value added contribution of the arts to our community has been noted many times. In The Fourth Era: The Economic Challenges Facing the GTA, a study prepared by the Toronto office of the Boston Consulting Group for the Greater Toronto Area Task Force, Toronto is cited as third only to New York City and Chicago as the head-office location for the largest 600 companies in Canada and the United States. Head offices, as the study indicates, are very valuable because of the jobs they create directly and indirectly through service purchases.
This business-magnet role of the arts is one of the reasons Toronto has also been cited in Fortune magazine and Places Rated Almanac for several years running as one of the 10 best cities in which to live and to do business.
The city of Toronto, like all great urban areas, possesses a thriving arts and culture sector in its downtown core and an extraordinary wealth of cultural institutions. This critical mass of arts organizations in downtown Toronto can be attributed to the traditional clustering effect of the arts that takes place in all urban centres. The city of Toronto has also strategically invested in funding of artists and arts organizations and has implemented planning policies that promote the arts. In addition, throughout Metro and the region there exist a significant number of cultural facilities, such as the Ford Centre for the Performing Arts in North York, the McLaughlin Gallery in Oshawa and the soon-to-open Living Arts Centre in Mississauga, that benefit from their proximity to the critical mass of artists who for the most part live and work in the downtown core.
In fiscal 1993-94, the Toronto non-profit arts and culture sector collectively generated a national economic impact exceeding $1 billion. The overall 1993-94 economic impact of the arts and culture, including cultural industries, in the GTA was $8.4 billion, 71% of Ontario's total cultural impact.
Tourism Toronto has estimated that cultural tourism is a $1-billion industry in the region. Arts and culture jobs represent 10% of all GTA employment. During 1993-94, Statistics Canada reported 225,000 jobs in the GTA related specifically to the arts and culture, that is, 60% of provincial cultural employment. This figure does not include employment generated in other industries as a result of cultural activity. Even so, it represents a little more than 10% of all GTA employment.
The health and wellbeing of city of Toronto arts organizations has a very direct impact on employment opportunities and economic activity across the GTA. An example of how city of Toronto-centred arts activity provides economic impact and employment for the region can be seen with the Canadian Stage Company. This non-profit theatre operating out of the city of Toronto-owned and -managed St Lawrence Centre procures 40% of its suppliers -- printers, graphics, lumber supply, mechanical and electrical firms and services -- from a GTA-wide area outside of Toronto.
Another example is Edge and Company, a set construction firm located in Oakville. In establishing this firm which specializes in high-tech automated theatrical sets, proprietor Chris Edge built on the experience he received from his initial training in the non-profit, subsidized theatre. In addition to many years at Stratford and Muskoka Summer Theatre, he worked for six years at Toronto's Young People's Theatre.
The theatrical boom taking place in Toronto in the 1980s helped to get him established. The Toronto market, both commercial theatre and non-profit, were his first major customers. He built shows like Miss Saigon for Mirvish Productions and Sunset Boulevard for Livent as well as shows for a number of Toronto's non-profit theatres like Canadian Stage. His company has become so successful that today it employs approximately 100 highly skilled and highly paid workers: electricians, carpenters, painters, sculptors. While he continues to count Toronto theatres as important clients, 95% of his business is now for the US and Broadway market as well as for American network television. Last year sales soared to almost $7 million, double those of the previous year.
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The company's strength lies in its leading-edge, high-tech, computer-based design and automation systems and construction. Its success is based not only on the vision and ability of its founder but also on the talent pool of innovative, creative workers adept at independent problem-solving, just the kind of individuals working in just the kind of knowledge industry that Nuala Beck describes in her book The New Economy. These knowledge-industry workers are just the kind the arts help to foster. We cannot afford to lose this critical mass of talent and knowledge that forms a vital sector of our economy and defines our quality of life.
Ms Susan Wright: I'm going to take up from there and talk about what the actual impact of Bill 106 will be on this non-profit arts and cultural sector.
Today, except for a handful of arts organizations that are property tax exempt, most non-profit arts organizations pay property taxes, usually at prohibitive rates. Under Bill 106, these organizations could see their property taxes increase by at least 50%, and this figure is before the impact of any downloading or reassessment is felt. This is based on analysis from Peter Viducis of the economic development division of the city of Toronto and it comes from the following figures.
Bill 106 will result in these extreme increases because:
It eliminates the business tax without making any provision for non-profit organizations. Under the current Assessment Act, non-profit arts organizations do not pay business tax, and the landlord only pays 85% of the realty tax that would be levied on the space if it were occupied by a business. Bill 106 will eliminate the business tax and the preferential rate for commercial units occupied by non-profit groups. The government will be looking for ways to absorb this revenue loss, either by cutting services or by increasing realty taxes. If total taxes are unchanged and the lost revenue is made up from increased commercial realty taxes, as the bill seems to allow, the total taxes paid by non-profit groups on net leases will rise by slightly more than 50%, and that's immediate, before any of the eight-year phase-in plan comes into effect.
Bill 106 also no longer allows non-profit organizations to pay property taxes at the residential tax rate. Currently, the mill rate applied to non-profit organizations is the same as the residential rate or 85% of the commercial rate. Withdrawing this provision creates an immediate tax increase of 17.5% on all non-profit property taxes. Also, we understand in the proposed draft regulations on property classes that the residential class is being defined to include various non-residential uses, which probably makes sense, but these include golf courses and ski resorts. They do not make any provision for non-profit arts organizations like theatres, galleries, concert halls and studios. I think the government needs to re-examine its focus for non-profit organizations and also for provisions that relate to leisure activities.
Bill 106 levies property taxes based on current value according to highest and best use. Highest and best use of most non-profit arts facilities will lead to tax assessments many times higher than is warranted by the actual use of the buildings. Non-profit organizations by definition do not make money. Taxing them as if they do is shortsighted and punitive.
A couple of cases in point: The Canadian Children's Dance Theatre in its Parliament Street location is currently paying $32,000 in annual taxes, or 28% of its earned income. This is before the effects of Bill 106. Toronto Artscape, the organization I work with, has a number of buildings in which it provides studio, performance and administrative space for artists and non-profit arts organizations. At 60 Atlantic Avenue, we currently pay $37,000 on total rent revenue of $166,000, or 22% of earned income. At 179 Richmond Street West, the Music Gallery's centre for contemporary music, current taxes are $30,000 on a total rent of $68,000, a 44% assessment. Currently, obviously, taxes paid by non-profit organizations are very high. Bill 106 will only increase these and increase them possibly by more than 50%. This would lead to tremendous hardship for non-profit arts organizations, hardship they are unlikely to be able to survive.
Ms Bermonte: We've come up with some solutions that we'd like to propose to you. Basically there are three recommendations. The recommendations are intended to mitigate the potentially negative effects of Bill 106 on the arts community and to ensure that the critical mass of arts activities and facilities continues to contribute significantly to Ontario's economy and quality of life. The Toronto Arts Council and Artscape recommend the following with respect to assessment policy and practices and tax policy options:
(1) That all arts organizations be treated equally, either through the establishment of a consistent tax assessment policy to provide grants in lieu of property taxes for all facility-based arts organizations, or the establishment of consistent assessment and tax policies which enable all organizations to pay a fair and reasonable amount.
Such a consistent policy in this area would, in addition to being fairer than the current system, limit assessment appeals. Today taxes paid by cultural facilities vary widely, from none at all for Massey Hall, the Elgin and Winter Garden Theatre, the Bata Shoe Museum, the Ford Centre for the Performing Arts and the Hummingbird Centre, through taxes ranging from 70 cents per square foot to over $3.50 per square foot in non-profit arts facilities in downtown Toronto.
Other jurisdictions such as the province of Quebec have established a policy of providing municipalities with grants in lieu of property taxes for properties occupied by non-profit arts groups registered as charitable organizations. The city of Montreal itself provides further rebates to non-profit arts groups for service taxes like water and sewage. In addition, these organizations do not pay any school tax unless a building has a residential component, in which case a tax pro-rated according to area is charged. Alberta municipalities can also exempt non-profit organizations from property taxation.
(2) We recommend that non-profit arts and cultural organizations continue to be taxed at the residential tax rate, either through a separate property class encompassing all non-profit arts and culture performance, administrative, exhibition and production spaces or that the residential class be expanded to include properties occupied by non-profit arts organizations. We don't want to have to see arts groups having to open up mini-putts in their lobbies in order to meet this criterion.
(3) That the current value of cultural facilities -- all properties owned or rented by arts organizations and to which the public is invited to attend exhibitions, workshops, performances or readings on a regular basis -- be determined on the basis of current use based on a three-year rolling average of gross earned income up to a specified cap.
The arts community is experiencing extreme financial stress in these times of massive funding cuts. Without such provisions built into the property tax system to shield the community from volatile market forces, Bill 106 could result in significant deleterious effects to Toronto's critical mass of arts and culture groups.
The Chair: That leaves us with about three minutes per caucus, and we'll start with the government caucus, Ms Bassett.
Ms Bassett: Thanks for your presentation. I'm really glad that you came forward because you are forcing us to focus on the significant contribution the arts make. We are well aware of it in terms of the film industry and the arts community. Now it's a matter of looking at what we can do to prop you up or sustain life, and you do make a number of important recommendations. Is there anything in particular? You've put several options. Is there any one that you favour that you think would be best for you, or do they have to be together?
Ms Bermonte: I think one would be a separate property class for the non-profit groups which would also be taxed at the residential rate. That is a very, very important issue because without it there is an automatic increase of more than 50%.
Ms Bassett: One of the people who was presenting from one of the arts communities this week mentioned that there's a very fine line between what is profit and what is non-profit. Sometimes it's just the people with the smarts who get to be non-profit. I don't mean it in any deleterious way to say that, but she was arguing that's not a fair classification. I just was grasping, because we'd have to delineate what is and what isn't and then it's up to you. Some are so small that you don't have the wherewithal to go and find out what all the latest tax dodges are etc.
Ms Wright: That's difficult. It is however true that a non-profit organization -- it's just a question of incorporating yourself as such. There has to be an intent to make a profit to be a profit-making organization. There's absolutely no reason why any incorporated company can't change their status to non-profit if they prefer to operate that way. Perhaps, depending on what happens, they would find it far more advantageous to do so. But I think we can only really speak for the non-profit.
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Ms Bermonte: We actually thought very much, because we have in the past spoken to David Mirvish around the province. He's encountering it, particularly with the Princess of Wales when it was reassessed, and we just don't feel qualified to speak on behalf of Mr Mirvish or Mr Drabinsky. Their issues are also very important, but then I think they have to come to you directly and identify what solutions would work best for them. As Susan said, we can speak to the community that we're most familiar with and that's the non-profit sector.
Ms Bassett: Of course, but we are looking at it.
Ms Bermonte: I will point out too that both Mr Mirvish and Mr Drabinsky are on record numerous times as identifying that if it were not for the non-profit sector, they could not be doing what they're doing right now. So the infrastructure and the continuum between the two are very, very strong and tight.
Mr Phillips: I think it's a very important presentation. The challenge we face is that the government, as we keep saying, has decided to move extremely quickly on this thing. We're almost finished our Toronto hearings. This is the last day. We've half a day left here. We're going to be travelling for four days next week, one day of what we call clause-by-clause and then the bill's done. The government's pretty proud of itself for all the courage to do these things, although what we're finding is that there's a fine line between courage and recklessness and it looks like they're more reckless than courageous.
Have you had a chance to look at what they call the draft regulations? I think you must have.
Ms Bermonte: Yes, we have.
Mr Phillips: They do nothing to satisfy -- well, actually they make your problem clearer, that you've got a problem.
Ms Bermonte: Yes.
Mr Phillips: Or we have a problem.
Ms Bermonte: Yes.
Mr Phillips: Have you had a chance to discuss the rationale for why they've excluded you? You quite correctly point out the --
Ms Bermonte: Ski hill, golf course.
Mr Phillips: It doesn't mention mini-putt, but you think it may include mini-putt. You think that may be your way around it, with a mini-putt in the lobby.
Ms Bermonte: I guess it's a preference.
Mr Phillips: Have you any idea why they've included the golf course but excluded your organizations?
Mr Pouliot: It's not a 905 location.
Ms Bermonte: I think it's again urban versus rural issues. The arts are very much part of an urban environment. However, I think what I tried to point out in the first half of the presentation is that they're very far-reaching in their effects around economic impact and quality of life.
Mr Phillips: Yes.
Ms Bermonte: I think perhaps that's what we're seeing in the draft regulations. Also, perhaps there are personal preferences around leisure activities reflected in that.
Mr Phillips: I never thought of that.
I think you've outlined, if I might just quickly, what can only be described as a catastrophic impact if changes aren't made in this.
Ms Bermonte: Absolutely.
Mr Phillips: Apart from this discussion here, has your organization had any private talks with the civil servants around the possibility of changing the regulation?
Ms Bermonte: No, we haven't. That's a very good point. We've only really become aware of this issue in the last three weeks. We've also of course been inundated with so many other issues affecting the city of Toronto that our resources are very limited and we find that they are being spread very wide.
Ms Wright: Just to add, we did make presentations to the Crombie panel on this issue specifically.
Mr Phillips: It's important. Thank you.
The Chair: Mr Pouliot, three minutes.
Mr Pouliot: Thank you for your zest and enthusiasm in pointing out a balance, an equilibrium. On the one side those who seem to have a stronger voice -- I don't wish to prejudice your presentation, but as you lined them up, it seems that, a priori, if you're big, you have a better chance of getting recognition, but if you are not, if you're more like street culture, your voice is not as organized and you don't seem to have as much clout. That wouldn't be entirely fair, but it seems that way.
I'm encouraged, and I hope you are, that you have struck a positive response. I'm encouraged by the government's sensitivity when it comes to -- in some cases, the point makes itself, on the one hand and on the other end. I'm sure that they too, by the tone, are looking to have a better level playing field; that you count too. We're all Ontarians etc and everybody benefits.
I will say no more. You've said it all, and I've heard from both my friend Mr Phillips and the government.
Ms Bermonte: Thank you very much.
The Chair: We thank the Toronto Arts Council for their presentation today. We appreciate it very much.
Ms Bermonte: And Toronto Artscape.
The Chair: There is no further business other than I've had a request for a subcommittee meeting, and I think it's probably a three-minuter. Do we have the time now?
Mr Phillips: We'll make the time. I think it's important.
Ms Bassett: Okay.
The Chair: If so, fine. The committee will stand adjourned then until 2 o'clock this afternoon.
The committee recessed from 1206 to 1400.
FEDERATION OF METRO TENANTS' ASSOCIATIONS
The Chair: We will call the meeting back to order. Again, I appreciate the committee's promptness. We have with us this afternoon the Federation of Metro Tenants' Associations, Mr Tessler. Welcome to the committee, Mr Tessler.
Mr Howard Tessler: I'd like to introduce my chairperson, Barbara Hurd, who is busy getting her glasses. We'll be presenting together.
On behalf of the members and the board of directors of the Federation of Metro Tenants' Associations, I would like to thank the government for allowing us to address these hearings on Bill 106, the Fair Municipal Finance Act. The federation would like to address only one aspect of this new legislation: the proposed changes that will affect the taxation of multiresidential rental housing.
Before we begin, we would like to state that the federation has long supported and advocated reform of a property tax system which saw multiunit residential rental housing assessed at a much higher rate than other forms of residential housing such as owner-occupied condominiums and single-family homes.
We have submitted briefs to numerous government inquiries, including the Fair Tax Commission, the GTA Task Force and the Who Does What panel. The federation has lobbied local municipal councils as well as provincial members of Parliament and the government to alter this unfair system. We have held countless tenant workshops on the subject and have produced popular education material on tenants and taxes.
Since the election of this government, the Minister of Municipal Affairs and Housing has stated that the assessment of residential rental property was unfair and that this government would seek to change this.
It was, however, with great disappointment that we learned of the contents of the Fair Municipal Finance Act on January 16. The federation sees Bill 106 as a betrayal of tenants. In the very announcement of the act, Mr Ernie Eves talked about the unfairness of the present system in which "thousands of homeowners and businesses are paying more property tax than they should be." He said that property tax for farmers and for woodlot owners would be cut and that conservation lands would be made exempt. The bill would also reduce the red tape and administrative costs for municipalities. Nowhere in his announcement was there a single mention of residential rental tenants. Nowhere was there recognition that Ontario's 3.2 million tenants pay $1.5 billion in property tax each year.
Ms Barbara Hurd: I'm going to speak on how Bill 106 will affect tenants.
When taken on its own, Bill 106 can be seen as tenant- neutral. The major change advocated, the imposition of a province-wide current value assessment system, does not spell out that tenants will pay either higher or lower property tax. As with market value assessment, some multiunit residential rental properties will be assessed at a greater value than in the past, while others will be valued at a lower amount.
Tenants in properties assessed at a greater value will have their rents raised, since property tax is considered by both current and proposed tenant protection legislation as an extraordinary operating cost. These increases are not limited or capped and cannot be challenged by the tenant.
Those multiunit residential rental buildings whose assessed current value is a lower amount will definitely see landlords experience a drop in their operating costs. However, under both the current Rent Control Act and the proposed legislation, this saving will not be automatically passed on to tenants. Tenants under both the present and proposed legislation can apply for a reduction in rent because of this decrease in cost.
However, even if the assessment system does result in lowering the property tax on some multiunit residential rental buildings, tenants will have a difficult time realizing any savings in rent under the new legislation. Section 133 of Bill 96 calls for individual tenants to apply for such a reduction even though the landlord's saving is for the entire building.
Property tax is rolled into the rent tenants pay and is hence invisible. Many municipalities do not inform their tenant residents of the amount of property tax they pay. Aside from this lack of information, the composition of the tenant population is such that many tenants will not be able to use the tribunal process. Many are seniors who will find the application process physically difficult. A large percentage are new Canadians whose lack of English language skills will hinder their application capabilities. Many individual tenants will therefore not apply for the saving they are legally entitled to. It should also be noted that there will be an application fee for any appeal before the tribunal. This will discourage many low-income tenants from applying for savings they are legally entitled to.
The federation would like to suggest that if this government seeks to move in the direction of fairness and justice, amendments be made to both Bill 96 and Bill 106.
Section 133 of Bill 96 should be amended to require the tribunal to join all units in the residential rental complex to an appeal where all rents would be affected by the issues raised in the application.
Bill 106 should be amended in such a way that landlords of multiunit residential rental properties be required to treat their tenants in a manner similar to landlords of business property, who are required under section 51(2.1) to inform each tenant of the amount of tax the tenant is required to pay.
Ideally, the federation would like to see some form of automatic mechanism in which any property tax saving would benefit both landlord and tenant.
Mr Tessler: Bill 106's failure to address unfairness: When Bill 106 was announced on January 16, the Minister of Finance issued a backgrounder stating that the new legislation "will give municipalities the power to ensure that rental properties are taxed at a fair rate." This fair rate would rectify the present assessment system in which homeowners are taxed on 2% of their home's real worth, while multiunit residential buildings are taxed at 10%.
Bill 106 gives municipalities the power to create a special class for new residential rental buildings of seven units or more that would be taxed at a special rate comparable to that of owner-occupied condominiums and single-family homes, but this is for an eight-year period. After this eight-year period, these rental properties would be taxed at the same rate as other residential rental buildings.
The reasoning behind this enabling legislation is that the lowered rates would encourage the construction of new rental supply. It is similar to the previous provincial government's five-year exemption from rent control of new rental housing. Landlords and developers have consistently listed high and unfair property taxes as a major reason for their reluctance or refusal to develop new rental housing. Just as the five-year exemption from rent control under the New Democratic government did not entice the private market to build, an eight-year exemption will also not end their reluctance.
While nothing will be gained, municipalities have much to lose. They will lose important tax revenue that will be essential given the downloading of social services that was announced during mega-week. It is estimated that the net revenue shortfall across Metro will be $483.1 million. The city of Toronto estimates that its taxes will have to rise by 11.7% to pay for the downloaded services.
The federation can only ask: Why would any municipality enact a new property tax that will result in the lowering of revenues at the same time as it is being given new and heavy fiscal responsibilities? Perhaps this is why the class is limited to newly built residential rental buildings and applies only for a limited time. The government realizes that under its proposed division of responsibilities, Who Does What, fairness would be fiscally dangerous for those now responsible for its enactment.
Ms Hurd: Taxes, tenants and the status quo: The government says that Bill 106 will end the regime under which tenants pay more taxes than homeowners while encouraging new rental housing supply. A close examination shows that it will do neither.
Tenants will not benefit by the move to current value assessment even though their landlords may make windfall profits. In fact, when Bill 106 is seen in conjunction with Bill 96, tenants are worse off than they are under the present system. Neither does the new legislation end the invisibility of property tax in residential rental housing. Bill 106 treats commercial tenants far differently than it does residential ones.
Bill 106 places the onus on municipalities to move towards tax fairness while at the same time it has created an environment that will make this move almost impossible.
Will tenants fare better under a new tax regime created by Bill 106 than under the status quo? The Federation of Metro Tenants' Associations wishes it would be so. Unfortunately, the limited changes invoked by Bill 106, coupled with the anti-tenant provisions of Bill 96 and the fiscally crippling downloading, will see tenants pay more taxes through higher rents for less services in a continuing tight housing market.
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The Chair: Thank you very much. That leaves us about three and a half minutes per caucus.
Mr Phillips: What has been the rationale for, I gather, landlords not wanting to inform the tenants of the amount of property tax their unit pays?
Mr Tessler: I'm not a landlord and I'm not a mindreader, but I think one of the reasons is that landlords feel this is their business. Most producers of a good do not feel that the customer has any right to know what their cost of producing that good is. You go into a shoe store, you don't expect to have the manager of the shoe store explain that leather is X number of cents, labour is X number of cents and you pay this. The price is this and my cost is my own cost: I think that's the psychology.
In the hearings on 96 -- not 96; it hasn't occurred yet, thank God, but in the hearings on New Directions, landlords were complaining bitterly about any kind of red tape, any kind of regulation they were forced to do. Anything that the government asked them to do was seen as an obstacle. Again, if landlords are told, "You have to inform your tenant of the property tax," they'll say: "It's my business. I don't want to. They have no rights."
Mr Phillips: It seems strange to me.
Mr Tessler: It's bizarre, but there's the same reluctance in many municipalities to inform tenants of the property tax they pay.
Mr Phillips: I can maybe understand that, but I would have thought the landlords would --
Mr Tessler: Would relish it? I don't know.
Mr Phillips: I would have thought, and maybe you're not the right one to be asking the question, but --
Mr Tessler: I believe Philip and FRPO and UDI gave deputations.
Mr Phillips: Yes, they did.
Mr Tessler: You should have asked Philip.
Mr Phillips: Yes, you're right. They're gone.
Mr Tessler: Phil wouldn't tell me.
Mr Phillips: A phone call will get that. So I gather your concern is the combination of the two pieces of legislation. On the one hand, you're losing some protection on rent increases, and on the other hand, in your opinion, this bill does nothing to decrease your property taxes. Is that fair?
Mr Tessler: That's one of the gists of it, yes. The other is that again the government has said time and time again, Mr Leach has stated, that the property tax system now has to be changed so that tenants benefit and landlords benefit. He's stated that time and time again. He says, "We're the people who are going to do it," and he pointed to the tenants' allies and city hall: "Look, they're all against these changes; they're not your real friends. We are your real friends." The government comes out with new legislation that isn't going to really do it, plus the fact that Bill 96 makes it harder for tenants to claim a legitimate reduction. So what we're going to have is that landlords may get a windfall profit but there's not going to be any benefit for tenants.
Mr Pouliot: Madame, Monsieur, welcome. Bill 106, essentially the removal of the business occupancy tax, is an exercise, a compromise, where there are winners and losers. The bank towers are the benefactors. Large hotels will also benefit. Apartment units are supposed to benefit.
The unfortunate part of Bill 106 is that it, by itself -- well, it's not by itself; it does not operate in isolation. You have stated in your presentation that the city of Toronto will be subjected to an 11.7% decrease, a sum neighbouring $500 million.
If half of it were true, what it does in the real world of politics is wipe out the phase-in provision, because in a scenario where you must raise the money to pay for the police people, for the people who fight fires etc, you need to meet the payroll. You don't have the flexibility to wait; that's the real world and you're not to get a cheque from government.
I'm not imputing motives because this is not a revenue-neutral policy. This is $2 billion you take away from the marketplace that has to be made up someplace. Either the municipality goes after an opportunity created by different classes of taxes or class of tax, a side show to get back at them, in this case, a tax is a tax is a tax, plus ça change, plus c'est la même chose, nothing has been achieved.
Some landlords will see the opportunity to improve the unit and to pass some of the savings along. If we say they won't, we have to say they will or maybe they will. But when all this is said and done, do you feel that people at the residential level will be paying the same amount of taxes -- you have a reassessment coming down also -- less taxes or more taxes?
Mr Tessler: What we said in our brief and what we believe is that given the downloading of the services at the same time as the reassessment, the tax burden is going to be increased on all property and therefore tenants will pay more rent.
Mr Pouliot: Exactly.
Mr Tessler: At this stage in the economy, at this stage of the downloading, I think that tenants will be detrimentally affected, as with all segments of society as well; life in Toronto will be adversely affected with the downloading. The unfortunate thing is that other provisions aren't there so that if things improve, even if downloading didn't exist, there's no automatic passing on of the savings. Unfairness is perpetuated so that tenants who make up such a big percentage of this city and this province will not benefit one iota.
Mr Pouliot: But you see, we're in a catch-22 here. On the one hand, the landlords are saying, "I don't have an opportunity to expand because I'm not making enough money." On the other hand, if your rent goes up, and given the low vacancy rate you cannot meet that demand, you're out on the street.
Mr Tessler: Definitely.
Mr Ford: Mr Tessler, somewhere along the line in your conversation you mentioned that the previous government didn't create any more rental housing. Is that right?
Mr Tessler: No, I didn't say the previous government. I said that in the Rent Control Act of 1992 there was a provision for a five-year exemption from rent control for the construction of new rental housing, and that was to facilitate private developers to go out and build rental housing. Private developers said they didn't do that because it was five years and not forever. The proposed legislation, Bill 96, wipes out rent control on all new privately developed rental properties.
Mr Ford: Yes, some of these builders were supposed to be in a sort of non-profit building mode. It all depends from which view you're taking a look at it. We took at look at it and said it was probably the most profitable housing they've ever built. This was our point of view. As you are well aware, it wasn't supposed to be that way and it ended up that way. Now what we're trying to do is get a compatible housing situation. We still have rent controls on apartments --
Mr Tessler: No.
Mr Ford: You're saying yes and no. What's your opinion?
Mr Tessler: The proposed system of vacancy decontrol will see that it's the back door to the death of rent control. You've met with your constituents --
Mr Ford: Many times.
Mr Tessler: -- and they have told you the exact same words I am telling you, sir. If everybody's calling a thing a duck and it looks like duck and it flies like a duck, it's a duck.
Mr Ford: Flies like a duck, it's a duck. Okay. How do we get some breathing space in there for new development in rental housing?
Mr Tessler: This is a very good question. I don't know. I'm not a developer. I would love to see new development.
Mr Ford: We'd love to see that too.
Mr Tessler: I have asked Philip many times, "Where are you going to build affordable housing?" I've said: "Phil, you tell us, we'll publicize it in our journal, we'll make it known. You tell us the spaces, you tell us the rents, we'll help you fill it." And you know something? Phil never answered me back.
The fact is that in every meeting with developers, they have not said where they're going to build rental housing. They have said they will build condominiums, but not rental housing. If Bill 106 is supposed to adjust the property tax so they'll be encouraged to build rental housing, because a huge part of their costs are property tax, this does not do it. You've heard from the developers. We're on the same side. You want to do something, let's sit down and do it rationally. Don't play around and say you're going to encourage development when nobody in the world who builds them or lives in them -- says that you're not.
Mr Ford: Property taxes --
The Chair: Thank you very much. We appreciate your presentation to the committee today.
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CANADIAN TAXPAYERS FEDERATION
The Chair: The next presenter is the Canadian Taxpayers Federation, Mr Pagnuelo. Welcome to the committee.
Mr Paul Pagnuelo: We welcome the opportunity to comment on Bill 106, which deals with assessment and the levying of property taxes by municipalities.
As part of our submission to the committee, we've prepared what we call A Survival Guide for MPPs on property tax assessment reform. We call it a survival guide because if history has taught us anything it's that tax collecting and tax reform can be a politically dangerous business. Just ask former Prime Minister Brian Mulroney about how voters reacted to the imposition of the GST, or current Prime Minister Jean Chrétien, who was elected on his promise to kill, scrap and abolish the tax, not on a promise of simply replacing it by renaming it the BST, a most fitting title that reflects a broken election promise.
I think you will find our survival guide informative and useful. It deals with what's wrong with the system today, how reassessment has been divisive and a flashpoint with taxpayers across the province -- just not here in Metro Toronto -- the principles of reform, an assessment of the alternative systems that are available, and the solution, we think, to sensible tax reform.
You'll find in the section on international history that it talks about stories of kings turning people they didn't like into tax collectors with the understanding that they would probably be killed. During the Middle Ages the taxation of property took many unique turns. In Russia, plowed land was taxed, which proved to be a disincentive to work it. Homes were also taxed, but peasants began building duplexes and triplexes to avoid the tax. This resulted in the Russians going to a door tax, which in turn caused the peasants to board up all the doors but one.
Fortunately, Peter the Great, the infamous Russian czar, understood the futility of this tax, as the peasants were spending more time trying to avoid the tax by building and rebuilding homes than increasing productivity. So he scrapped it.
History shows that the battles we're going through over property taxes are far from new.
Finance Minister Ernie Eves says the act will do away with the grossly unfair system we have today. But this is not a debate about rich people paying little in taxes. It's a debate about finding a replacement system for taxing local municipal services that taxpayers will find to be stable, equitable, transparent and efficient. That's what fairness in a tax system is all about.
High-profile members of this government, including Isabel Bassett and Al Leach, have stated in writing in their election material that they would never support the imposition of MVA. A Mike Harris government, we were told, would review all the alternatives to MVA, including unit value assessment, to determine whether an alternative method would offer a more equitable and efficient means of assessing property taxes. Oh well, so much for the election promises and the integrity of a politician's word.
Call it market value, actual value, current value, fair value -- it all means the same. Simply renaming it and tinkering with some of the details, like Jean Chrétien has with the GST-BST, is not the reform taxpayers have been looking for.
The question that this government failed to ask and that all Ontarians should be considering is whether it makes sense that property taxes should be based on the market value of a property and the vagaries of the real estate market, or should be based instead on some form of measurement of the amount of local government services each property receives.
This question becomes even more important if property taxes are expected in the future to also pay for social services, such as welfare, housing for seniors etc. We fail to understand how changing real estate values should be the basis for determining how individuals and businesses should be expected to pay for income redistribution programs.
An army of tax collectors has been given its marching orders and the assault on taxpayers we think is going to be massive. In order to make this turkey fly, the provincial assessment division has convinced ministers Eves and Leach that the job can be done without the Harris government being stung in the process.
Despite assurances that it can be delivered on time, on cost and with a high degree of integrity, using its own resources and contract staff, the private sector was also invited to bid on all or part of the project. With millions on the table up for grabs, one would expect private sector firms to have been tripping over themselves for a piece of the action. But surprise: It's our understanding that because the process is so fundamentally flawed and guaranteed to fail, many in the private sector actually shunned the project. They don't want to put their own hard-earned reputations on the line.
In fact, this committee I understand heard earlier this week from Will Presley, a government property tax assessor in North Bay, that the government's timetable will ensure Ontario property taxpayers have the poorest assessment roll that will ever have been returned after a reassessment and that it will come at the highest possible price.
Stanley Hamilton, who served on the Commission of Inquiry on Property Taxation and Assessment and as a director of the BC Assessment Authority, told a conference in Toronto last November that it would take Ontario at least until the year 2000 to get AVA right without messing it up. In his view, rushing into AVA without adequate time for testing brings the risk of generally inaccurate assessments, with harmful results that could last a decade.
As the whole exercise of fixing Ontario's property tax system continues to evolve, it becomes increasingly apparent that the agenda and the whole process for assessment reform were hijacked from the very start by the tax collector bureaucracy. It's clear to us that the assessment bureaucracy has one prime objective. That is to secure its own continuous employment.
Civil servants are well aware of the political risk involved with AVA, but have silenced the alarm bells at Queen's Park. They've convinced our government to unplug the phones and lock the doors.
How else does one explain the fact that there never was a serious examination or consideration of alternative assessment systems, either by the Golden task force or by David Crombie's Who Does What advisory panel? How else does one explain why the findings of Libby Burnham's GTA review panel in respect to assessment reform were ignored? How else does one explain why the views of taxpayers, the people who will pay for the consequences of these decisions, have been completely dismissed? How else does one explain the fact that the Harris government, elected on the basis of a commonsense fiscal platform, has chosen to go with the highest-cost, most labour-intensive and most unstable system, one which will hit implementation gridlock and self-destruct just as Ontario readies itself for the next provincial election?
Is AVA really the wonder drug which will cure the problems with Ontario's property tax system? If so, why then are an increasing number of Ontario taxpayers reluctant to swallow this magical brew? Is it the ingredients, the side-effects, or the lure of perhaps easier-to-swallow remedies?
Under AVA, tax equity is a moving target because it requires annual reassessment. Tax burdens shift as market values move. However, there are one-time-only assessment alternatives where tax equity remains stable, without the need for ongoing tax shifts.
Israel uses a unit assessment system, where the assessment is determined by the physical dimensions of each property. Tax rates per square meter are policy-based, with variations by building type and location.
The UK has adopted a system which assigns residential properties to one of eight bands of 1991 values, with each property in a band paying the same level of tax. Non-residential properties, on the other hand, are not banded, but individually appraised on a renter value basis, with a five-year re-evaluation cycle.
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California, which used to be on an AVA system, moved to actual price acquisition in 1978. Assessments were rolled back to 1975 actual values, with a 2% annual inflation factor. Assessments in California are frozen until the property sells, at which time the sale price becomes the new assessed value.
In seeking meaningful reform to the property tax system, Ontario had several assessment models to choose from, and the Harris government has yet to provide a convincing argument as to why it selected the tax collector's dream of AVA and completely ignored proven, one-time-only assessment alternatives. How does AVA, a bureaucracy-driven solution to Ontario's property tax mess, measure up to other alternatives which the government has chosen to ignore?
Under AVA, all properties with the same current market value -- Ontario's proposal would average values over a three-year period -- have the same assessment. Now, in the UK, the assessment is the same for all properties failing within one of eight bands of 1991 market value. With unit assessment, all properties with the same physical dimensions have the same assessment, while California's APA system ties assessment to the last purchase price of the property. So when we look at all four models, they use very different equity standards, but we'll agree that each of them do meet what they set out to do.
In terms of stability, AVA ranks as the worst of all four systems, because the assessment changes annually in lockstep with fluctuating market values. On the other hand, California's APA guarantees no change in assessment until the property is sold. With UA, the assessment remains stable unless there is an add-on or reduction of the measured area. With the British council tax, stability is as good as the government's promise that properties will not be revalued.
The lowest marks for understanding how assessments are arrived at have got to go to AVA. Figuring out and appealing what your property would be worth if it sold on the open market today is no easy or inexpensive task for most property owners. Sure, the assessment bureaucracy may try to give a satisfactory explanation as to how this year's value for a property was calculated, but by the time the complex formulae and subjective judgements an assessor uses have all been factored in, the average person is likely to go bonkers trying to make sense of it.
The British council tax requires an understanding of how 1991 values were determined in order that the property could be banded, but at least it involves only a one-time effort, rather than an annual mind-boggling exercise. If you can read a tape measure, UA is really straightforward. Next is APA, where although the price you paid is easy to understand, the 2% annual inflation cap could add some complexity to the process.
Finally, there's the issue of cost, both in terms of administering the system and appeals. AVA is, without a doubt, the most expensive of all alternatives because it involves annual reassessment and a huge bureaucratic army to maintain the system. Who in their right mind is going to go through the expense and hassle of appealing their assessment each year? By comparison, unit, actual price acquisition and the British council tax are all low-cost assessment systems and, because of their design, the need for ongoing appeals is virtually non-existent.
When Municipal Affairs Minister Al Leach brought AVA to the cabinet table and finally to caucus, he somehow managed to sell it on the basis of equity, stability, understandability and efficiency. It certainly begs the question if everyone was asleep at the time and if common sense got parked at the front door of the Legislature.
I've got a section in my presentation that deals with consumption, and because of time I'll skip over it, but I'd ask you to look at it because what we're really talking about is consuming municipal services and how you pay for consumption. How do you pay for consumption today in anything else you buy, whether it's electric power from Hydro, whether it's water, whether it's groceries, whether it's rent, what have you? You all pay on the basis of how much you consume. What would your reaction be if Hydro all of a sudden said, "We're not going to charge you any more on the basis of consumption, but we're going to charge you on the market value of your property"?
In seeking meaningful reform to the property tax system, Ontario had several assessment models to choose from, and as we've said, the government has yet to provide a convincing argument as to why it selected the tax collector's dream of AVA and completely ignored proven, one-time only assessment alternatives. AVA simply tinkers with the status quo and, we think, breaks an election promise that certain MPPs did make. Other than fulfilling the dreams of the provincial assessment bureaucracy, we think if you implement AVA it's going to lead to a one-term government that had the potential and the opportunity to make radical but very sensible changes to our property tax system.
The Canadian Taxpayers Federation advocates a municipal services tax system that's comprised of user fees, a parcel or flat tax for certain services and unit assessment for the remainder. But regardless of our view, we strongly believe that the ultimate decision as to which alternative is best for Ontario should be left to those who will have to live with it, and that's the taxpayers of this province. That means letting them choose the system they want, either by a binding referendum or by a general election in which each party would clearly spell out the alternative it would implement if elected.
Rushing in a flawed, failed property tax system that angers taxpayers and that hires more tax collectors when the government is reducing staff elsewhere makes no political or common sense; taking the time to research, develop and implement a made-in-Ontario alternative that taxpayers will support, we believe, does. Thank you.
The Chair: Thank you very much. That leaves us just about a minute per caucus for comments. Could we start with the third party, Mr Pouliot.
Mr Pouliot: Welcome, Mr Pagnuelo. Well, life is made of good news and bad news, and the good always surpasses the bad, but today we have this unusual situation that, with respect, politically you might be left without a friend and the Conservatives find themselves in the same situation. A dilemma indeed.
I see your brief as a repetition of what many people have been saying, that this is too massive. We don't have answers to logical, reasonable questions that people have been asking, "Who will pay for this, and to what extent?" We fail to see a true definition of what the cost will be. I don't see it as a victory or attack their attempt. I think you speak candidly from your point of view.
Since, again, Bill 106 is not in isolation -- it is mesh, it is web, it is broad front -- people at the municipal level, taxpayers, people like yourself, are asking, "Show me the money; what about the cost?" If you tell me that it is revenue-neutral, cost for me or help me cost the price of new responsibilities. In a mere seven or eight months before its implementation, before it reaches the street, the marketplace, those answers are still not forthcoming.
So my colleague and I find ourselves asking the very same question, offering the very same binding referendum solution, among others, that you are. I don't feel all that comfortable, because I'm sure that if we were to develop the team, maybe one day you and I could find a disagreement, but I find myself supporting and asking the same question as you are. It's a very puzzling feeling for me.
Mr Pagnuelo: I don't know how to respond, other than that there is so much on the table here. Nobody is disagreeing with the need for reform, but I think we should have started this debate by saying, "If we're going to reform the property tax system, then what should be the common basis for assessment?" As I said earlier in my presentation, is that common basis to begin with the value of property, the value of real estate, something that shifts? I sit here and I say, "If nothing changes, if municipal budgets stayed the same, if nobody's houses sold, if everybody was staying in the same place, we were getting the same services, why should my taxes change from one year to the next simply because real estate values changed?" It makes absolutely no sense.
I'm a firm believer that you pay for what you consume, and so is the federation. We're saying that we should be looking, to the best of our ability, for a system that measures consumption. That's how we pay, on the basis of consumption, not some artificial value that's determined by realtors; that just makes absolutely no sense.
When we talk about cost, there are two things; one is, is the thing going to be revenue-neutral across the board, in terms of in a municipality, or are they going to use increased values as a way of also increasing revenues? The other issue, though, which we also want to focus on and not lose sight of in terms of cost, is in administering the system. Today it's about $130 million a year, which is going to get passed down to the municipalities and end up on our tax bills. If what they've done in BC is any example, what we're going to find is that those assessment costs are going to increase, we think, about 67%. So we're finding that the cost of administering this is going to go up, we think as high as $200 million a year. To us, that's a complete dead-weight loss to the economy. Why are we spending $200 million a year, or even if it was only $130 million and nothing changed, simply to administer a system when you can find alternative systems that virtually are cost-free?
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The Chair: Thank you. The government side, Ms Bassett.
Ms Bassett: Now, Paul, we've been over this, as you know, endlessly.
Mr Pagnuelo: I know.
Ms Bassett: I won't convince you. We'll agree to disagree. I think that our current value assessment is not MVA, for many reasons. I want to point out that's one of the systems we said we would look at, as we've looked at many systems before arriving at the current value assessment, and we certainly believe that streamlining the system is going to make it fairer for everyone, and it will save money and protect taxpayers. Obviously we wouldn't be doing it if we didn't believe this is the right way to go. Certainly we think it's going to make this system a lot easier to understand.
You said something in passing about how easy it will be to read your taxes with unit assessment. Well, right now the system of reading your taxes and finding out what you're paying is pretty bad. We feel that the new system will not only prevent erosion of the tax base, it will stop it. We're losing $100 million a year in revenues that we can't collect in Metro alone from appeals on outdated assessments. So the old assessment system isn't working. In BC, the most recent report in the Star shows it's only 2% of appeals. We feel initially the appeals will go up, naturally, but then it's going to level off.
You say the cost of the new assessment is going to be a lot. Initially it will be a lot. It will come down and level off. Initially when you rearrange or redo a house, it's a big deal. If we go along on a level playing field, we've got all the new equipment we can benefit from, the technology. There are many pluses in the system we've got. You must agree the present system is totally unfair.
Mr Pagnuelo: We've always said the present system is totally unfair. What we're saying is that there's no relationship between the value of a property and what you're consuming in municipal services, so why are we continuing to look at a system that simply does that? Why are we looking at a system that, we think, is going to be far more expensive in terms of administration? I'm not talking the one-time cost; I'm talking the ongoing, annual cost year after year after year. If we use BC as a model -- and that's what you've done with AVA -- we're going to find that $130 million a year that we're spending today going up, not going down.
The Chair: I'm glad that you two have agreed to disagree, because we're going to move to the Liberals. Mr Phillips.
Ms Bassett: Till next time.
Mr Phillips: We appreciate your presentation, and I'll just make an observation. Nobody says that change doesn't have to happen. I mean, everybody's there.
Mr Pagnuelo: Everybody's there.
Mr Phillips: That's not debatable. The problem is that we are being asked to, in business terms, sign the contract on this bill and there's only been, I think, one group in here that says the bill is good as it is and should proceed. Everybody else has some significant reservations.
As I say to my business friends, this is a government that says it's going to run government like a business. The problem is, they're giving business a bad name around here because there are significant problems with these things.
Furthermore, they refuse to give the public the information that's required to make a judgement on this bill. They won't give us any impact studies on the most sweeping changes in property tax in history, that will literally change the value of property. There are buildings in Toronto whose value will increase by $30 million to $35 million just when this bill is passed; there's no question of that. But they will not give us the impact studies. If you agree with me, why would you think they're keeping those impact studies from the public?
Mr Pagnuelo: I don't know if they really have them themselves. To be honest with you, if they saw the impact studies -- again, I don't trust the bureaucracies on this. I think the bureaucracies are leading this government to the altar of political sacrifice. They don't give a damn whether this government gets re-elected or not. In fact, they don't want to see this government get re-elected, as far as I can make out. I think they're leading the sheep to slaughter.
I don't think the government has been able to clearly see exactly what the dangers are out there. I can tell you, from years of being involved with municipal ratepayer groups across this province, that every time there's been a reassessment it's got to be the most volatile issue with taxpayers anywhere. You'll find, other than regions that are on automatic four-year updates, that municipalities that have tried it once haven't gone back on their own because they've been burned and stung before. It's not that taxpayers are objecting to a common basis -- they're not -- but I think more and more people are questioning, "What have real estate values got to do with what I should be paying for the services I'm consuming?"
The Chair: Thank you very much. We appreciate the Canadian Taxpayers Federation's presentation today.
SHERATON CENTRE TORONTO HOTEL
The Chair: We now welcome the Sheraton Centre, Mr David Cocks. Welcome to the committee.
Mr Dave Cocks: Thank you very much, and good afternoon. I'm Dave Cocks, general manager of the 1,400-room Sheraton Centre Toronto Hotel. As a key flagship hotel for Toronto's tourism industry, we host approximately 600,000 guests annually. These guests include business travellers, meeting and convention delegates and the growing leisure market. Our 1.5-million-square-foot hotel complex includes 1,382 guest rooms, 84,000 square feet of function and meeting space, two levels of retail shops and services, five restaurants and lounges, and we proudly employ just under 1,000 persons.
Like other hotels in the city, the Sheraton Centre Toronto has been seriously impacted and hindered by the unequitable level of assessment on our operation. Despite our best efforts to sell and fill the hotel both in the short and long term, our adjusted gross operating profit line has repeatedly been red-flagged at our corporate offices in Boston, Massachusetts. After the taxes are paid, there is no profit left, none whatsoever.
ITT Sheraton is an international hospitality company conducting business in 64 countries around the globe, and throughout North America there are close to 300 ITT Sheraton properties. Regardless of location, the Sheraton Centre Toronto is by far confronted with the highest tax rates. Hotel properties in New York, Chicago, Los Angeles, Boston, Washington and Atlanta, comparable cities to Toronto, all enjoy mill rates substantially less than Toronto. For example, the 1993 taxes per room in Los Angeles were C$1,143, in Atlanta C$1,274, and in Chicago C$4,492. Here in Toronto they were $5,733. I've included that as appendix A at the back.
You have probably heard of the Pannell Kerr Forster report stating that "The excessive levels of realty and business taxation are threatening the economic viability of the hotel industry in Metropolitan Toronto." I am here today to validate this statement, both from a personal perspective and from having witnessed the impact of the assessment at other hotels.
Tax arrears and receiverships have significantly contributed to the ongoing problems of the industry and they have, on an incremental basis, created an artificial lower cost base which has put added strain on rate structures and our average daily rates. In addition, you will probably be surprised to learn that on an industry basis, we have just recently surpassed our 1988 daily room rates. It has been a constant uphill battle for nine years, a battle we do not wish to repeat.
It is my understanding that Bill 106, once passed, will provide hotels with fair property tax treatment and we will be assessed at the same level of assessment as other commercial properties. This is welcome news. After four decades of inequity, we will finally see fair and equitable treatment vis-à-vis our assessment and mill rate. To this end, I thank you for your commitment to equity for the tourism industry.
While I am here today, I would also like to table two other important issues, those being variable tax rates, which are crucial to the success of the legislation, and the provision enabling the minister to create new classes upon request from a municipality.
The proposed legislation contains a clause 2(2)(e) which causes our hotel industry significant problems. Specifically, it would allow the minister, upon request from municipalities, to prescribe new classes of property which could be taxed at a different rate. We urge the government to agree to amend this.
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We understand that the intent of this section is to enable the minister to support municipal objectives. However, the industry has been victimized for some 25-plus years by such discriminatory action and cannot agree that allowing for the possibility of such action to occur in the future is in any way in our best interests.
If these future municipal goals and objectives are worthy and in the interests of the public, the presiding government would have no trouble introducing the legislation. The authorizing of such ministerial actions will not guarantee an open process and discussion before such action would be implemented.
Bill 106 is about providing fair and equitable property tax treatment for everyone. We urge you not to provide the means to cancelling this principle in the same bill.
If my hotel and others are to receive the benefits of property tax reform, ie, lower taxes, the establishment of the new variable tax rates is critical to meeting this objective. Finance Minister Ernie Eves recognized in his budget that the hotels in Metropolitan Toronto were disadvantaged by property taxes that were higher than those of the commercial sector and would take action to address the disadvantage.
In addition, there remains a substantial difference in property tax among the various municipalities, and with property tax in downtown Toronto being between $2,200 to $2,800 higher than that of the neighbouring municipalities of Etobicoke, North York and Scarborough, we as downtown properties are presented with a greater challenge in remaining competitive in the marketplace. For example, 1993 taxes per room in Scarborough were $2,937, $3,125 in North York and $3,480 in Etobicoke, compared to $5,733 in Toronto.
We in the hospitality industry are most concerned that all this could lead to the municipality being able to thwart this commitment by way of their power to set these differing rates. City of Toronto council has been supportive in having hotels being treated fairly and receiving equitable assessment. However, when it comes to residents and property taxes, we, as a business, do not stand a chance. History has clearly demonstrated that business, when placed against residential concerns, cannot depend on the municipal levels of government to ensure it receives fair and equitable treatment, be it property tax or other areas of municipal responsibility.
Therefore, I urge you to ensure that in setting these ranges it is done so that the benefits of property tax reform flow through to us in the form of lower taxes. It cannot be stressed too much: Lower taxes are the key to restoring economic health to our stagnant industry. Property taxes are by far my largest uncontrollable expense. My colleagues share this same burden. We are not seeking special attention or favours and can accept paying our fair share. The revenue available from lower taxes is required to reinvest in our operations and property in order to remain competitive. You have heard about the new trade centre and the summer launch of the newly expanded convention centre. Both of these facilities are brand-new, state-of-the-art centres, and it is imperative, in order for us in the industry to remain competitive in the marketplace, to be able to reinvest in our own facilities.
I would also like to take this opportunity to state our conditional 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 it will now collect 100% of its assessment. However, I am concerned as to the process a municipality would utilize to recapture this lost revenue.
Currently, hotels pay a 30% rate for this tax. I believe that if a municipality does move to recapture this revenue, it must be done fairly and equitably. Given our past record of subsidization, this should not be the beginning of another form of it.
As with the variable tax rates, I urge the government to ensure that in the likelihood this amount comes back on to the property tax base, municipalities must do it in a fair manner. By this, I mean they should not be able to download it all or the majority of it on a class or a class within a class. It must be applied in a fair and equitable manner across the board. As I have indicated, I do not mind paying my fair share, but after 25 years of subsidization, we've had enough.
I would also like to add endorsement of 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. Assessments based on a particular year can lead to an unrealistic assessment. A three-year blended average should eliminate the spikes and result in a fairer assessment, which will hopefully take into account the business cycle that exists in virtually all hotels.
Before closing, I would like to briefly raise the phase-in provision. We have been waiting for over three decades for fair property tax treatment. Waiting for another eight years to receive the full benefits is very tough, especially with the possibility of the new 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 have had to wait for so many years to be treated fairly. We ask that the necessary steps are taken immediately to ensure the fairness this bill will provide us is not thwarted by the variable tax rate process or by allowing new classes to be created by relatively easy means. Thank you.
The Chair: Thank you very much. That leaves us about three minutes per caucus for questions. We'll start with the government side.
Ms Bassett: Thank you for your presentation. It's always interesting to be reminded of the inequities in property tax. Could you go over once more the differences you suffer and what that cost you?
Mr Cocks: Right now, the hotels are assessed just about double what the commercial rate is in downtown Toronto.
Ms Bassett: Why is that?
Mr Cocks: I honestly don't know. I'm a newcomer to Toronto. I've been here about two years now. All I know is that it's been here forever.
Ms Bassett: That's what everyone says, and that you can't change it -- until now.
Mr Cocks: We're trying. As I said in my presentation, and I've been with ITT Sheraton 20 years, this is the highest tax rate I have ever experienced as a hotel manager.
Ms Bassett: What impact does that have on your business?
Mr Cocks: It doesn't allow us to reinvest capital dollars into keeping the building up. It doesn't allow us to, say, keep marginal operations within a hotel operational, such as marginal operating restaurants, which employ people.
A classic example for us would be the closure of the Winter Palace on top of the hotel back in 1992 because, with such high taxation rates, it was a marginally performing operation. That restaurant employed upwards of 60 people. There just was not economic room at the time to allow the hotel to continue a marginal operation.
Ms Bassett: I understand that if this measure goes through, hotels will be able to provide much more employment to other people.
Mr Cocks: That is correct.
Ms Bassett: Are there any figures you could put on that, ballpark?
Mr Cocks: For myself, we would seriously be looking at another 10% to 15% employment above and beyond my 1,000 employees now.
Mr Phillips: That's encouraging. I gather the expectation is that you'd do 10% to 15% more business.
Mr Cocks: No, sir. What it implies is that I could take a different approach to being what I would call competitive in my own business. I'll use the Winter Palace restaurant as a perfect example. I would be able to have economic resources available to me now to have startup costs for a new enterprise and a new restaurant to make myself, hopefully, more competitive in a very difficult marketplace.
Mr Phillips: In terms of the expectations of the possible savings if the bill goes through, have you done any calculations? Is it $1,000 a year per room, or what is it?
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Mr Cocks: I've heard such different numbers being bandied about that I'm hesitant to put a number on the table because I don't know what the final outcome is going to be. We've heard ranges. I can say that if the hotels were treated the same as commercial properties, I'm looking at millions of dollars a year.
Mr Phillips: That's right. You're a big 1,400-room hotel.
We have conflicting concerns. Your industry is concerned. By the way, many, many business organizations, virtually every business organization except I think the Ontario Chamber of Commerce, has said, "Do not permit within the bill the establishment of more classes of property," because, I gather, of concern by your industry that that leaves the door open for a return to what you've been concerned about. I realize it's kind of a detail of the bill, but how strongly does your organization feel about the risk of municipalities prescribing new classes of property?
Mr Cocks: I'd have to answer that what we are seeking is fair treatment. We're not in government or in the business to please people. We're in the business of hosting people graciously. All we want is a fairness compared to other commercial properties or other industries. We just don't feel hotels being singled out and paying double the rate, which is currently happening, is fair. I think the result, the economic impact on the hotels, especially in recent years when business was bad, has shown its toll.
Mr Pouliot: Thank you most kindly, and welcome. Personally on account of lack of information and through other approaches, I don't agree with what is being done with respect to the government in terms of the introduction at this time of yet one more bill, but if I were the government, I think I would be sympathetic to your alternative of a three-year blended average as opposed to the "continuous" -- I shouldn't say "quote"; you didn't say this -- assessment practice which, by your tone, would entail that you hinder stability to some extent, that you could have the flexibility with a three-year blended average, it's better managed and it doesn't subject one to the same acute fluctuations.
Subsection 2(2), as mentioned in your presentation, gives the ability upon request to a municipal government to create another class of taxes. Hypothetically, what you gain by the elimination of the BOT could be in part or in whole jeopardized by another levy. I mean, a tax is a tax is a tax, and in your worst-case scenario you wouldn't be further ahead, and that presents a problématique for you. It's a question that you feel must be answered so that if you get a tax cut, you'll be able to really get a tax cut.
There are two words, among others, but since I came here 12 years ago, if I was to keep track of repetition, and all in a good cause, the first one is, "Our situation is unique," and the second word or phrase would be, "I don't mind paying my fair share." The municipality will have to take the money someplace. They'll have to make up the slack for those winners and losers, if you wish. In the world of politics, if there is one of you at the Sheraton and to make up for the difference there are 500 residential taxpayers, which way do you feel the balance will go, strictly from a political point of view?
Mr Cocks: As I stated in my presentation, business never wins at the expense of residents. But I would like to remind everyone of the significant impact that tourism has on Ontario and Canada and that the tourism industry is a massive employer.
The Chair: We thank the Sheraton Centre for making their presentation to us today. Thank you very much, Mr Cocks.
ONTARIO AND TORONTO AUTOMOBILE DEALERS ASSOCIATION
The Chair: We now welcome the Ontario and Toronto Automobile Dealers Association, Mr Bill Davis. Thank you very much for joining us today, Mr Davis.
Mr Bill Davis: Ladies and gentlemen, as the director of government relations for the Ontario and Toronto Automobile Dealers Association, I am pleased to have this opportunity to share with the committee some of the concerns our members have with respect to Bill 106.
The OA/TADA represents approximately 1,000 new car franchise dealers that employ about 54,000 highly trained professionals and technicians. These individuals not only make a significant contribution to the economic wellbeing of this province, but on a microlevel contribute to the life and vitality of the communities they serve.
The automobile industry is just emerging from the cocoon of the recession and sales are increasing. However, a spirit of pessimism still shrouds our industry and will continue to do so until we experience several additional months of increases. Only then can we as an industry feel that the recession is truly behind us.
Thus, when external changes, such as those contained in Bill 106, are presented, changes that a dealer has no control over, profitability is impacted and resultant costs are absorbed through increased vehicle prices. Industry recovery slows down.
Our association applauds the government's initiative, conviction and courage in undertaking the necessary but difficult task of reforming property tax assessments so they are fair, just and equitable for all Ontarians. While we support the reform, we must ask this government to ensure that these changes are indeed fair, just and equitable to all parties. To that end, the legislation and its attendant regulations must ensure that the municipal powers to place higher taxes and fees for service on the backs of fragile business communities is held in check.
During the MVA debates, the Ontario and Toronto automobile dealers strongly encouraged the provincial and municipal governments of the day to determine what the effects of MVA on Metro's commercial and industrial sectors might be through an economic impact study. We certainly hope the present government has initiated similar economic studies and is fully apprised of the impact the new assessment reforms will have on the business community. In fact, if these studies were available to the business community, we could better determine the impact the proposed reforms would have on our members and present a more comprehensive report to the standing committee.
Without question, there is fear out there because of so many unknown factors connected with the reforms, fear that these changes could result in a marked increase in property tax of the same magnitude as MVA, fear that such increases, as the MVA debates indicated, could result in the closing of local businesses, rising unemployment and a mass exodus of businesses from the downtown core.
In the MVA debates, members of our association in the Metro area faced property tax increases that varied from 90% to 396%. Some of the dealerships facing those unimaginable tax increases would have had to close their doors and scatter their employees to the faceless lines of the unemployed. Unlike other enterprises, a dealership cannot simply pack up its inventory and move to a new location, as a manufacturer has allocated them a certain area in which to operate.
Bill 106 contains sections that, in our opinion, would provide municipal councils with an easy solution of downloading the lion's share of tax increases on to Ontario's commercial and industrial sectors. This bill grants municipalities the right to levy different tax rates against different classes of property.
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In its present form, the bill establishes a scenario in which a municipality could attach a tax rate to dealerships that is different from that of a small used car lot or a Speedy Muffler operation because dealerships are a recognizable and unique class of property. The determining factor in the classification of property could be as simple as the financial ability of the business to pay the new tax rates. Conversely, one can envision a patchwork of different tax rates for dealerships from municipality to municipality, depending upon the whims of the local council or municipalities in establishing a class of property. It's imperative, therefore, that the legislation limits the freedom of the municipalities in determining the classes of property and that the classification system is tied to some provincial standard.
Our members also have a concern with section 12(3) of the proposed legislation, which appears to grant municipalities the authority to assess non-residential properties at the best or highest use of the land while the buildings would be assessed at the current use. If our interpretation is correct, then the business and industrial lands will indeed be assessed on a basis similar to the old MVA proposals. For the new property tax system to be equitable, fair and just, the assessment of all lands should be based on current value.
We are supportive of the proposals to eliminate the business assessment. However, the reality is that no municipality can afford to lose this revenue, so it will simply increase the property tax of businesses to recoup the lost revenues. The concern is that since there is no correlation of this tax to a percentage of the property tax, the municipality can increase this portion of the new tax base to what ever degree it wishes. In fact, there exists a distinct possibility that municipalities could assess this lost revenue in a disproportionate manner to the business community.
I've attempted today to highlight some of our concerns with Bill 106. The bottom line is that any property tax reform must be fair, just and equitable for all stakeholders, be they residential, commercial or industrial.
Mr Chair, I'd be pleased to answer any questions from the committee if they have them.
The Chair: Thank you very much. We have about three minutes per caucus, and we start with the Liberal caucus.
Mr Phillips: One of our problems with the bill is that we were unable to get any impact studies from the province, and I think everybody knows why. If they release them, there will be a firestorm, because we know there are going to be some severe dislocations, and so in a strange way democracy has chosen to hide from the people it serves the information they need to make a judgement because they know a lot of them are not going to be very happy.
That puts us in a bit of a tough spot, frankly, in the opposition at least, because we've got to approve this bill. We've got four more days of hearings. We then have one day of clause-by-clause and then it's over, it's finished. The bill will be approved within six weeks or so. So I share some of your concerns. I think if your members saw the impact, which I believe the government has, you wouldn't be here by yourself; you'd have them there.
Maybe the government thinks it's smart politics. Maybe they figure it's easy to face the firestorm a year from now when it happens and blame it on the municipalities. I think that's what they're hoping. I'm sounding a bit political here, but I think they hope they'll pass the bill and they can then blame the local councils and they'll say, "Well, you go see the mayor because the mayor's doing this to you."
By the way, you make a very good point that needs clarification on the two values of the current use and the future use. I can assure you we'll take a good look at that.
Mr Davis: Thank you.
Mr Phillips: Has your organization made any judgements on what could happen to property taxes on your organization?
Mr Davis: No, we haven't, Gerry, other than because there's some information that's lacking, unlike the MVA debates where we were able to access the information and were able to sit down specifically with the Metro dealers and look at the impact; we just haven't been able to do that. So we did a cursory review of the proposed legislation and found some areas that have some concerns for the business community and our members. If the information was available, we would have been able to give a more comprehensive report and know exactly what the impact was.
The problem with our industry is unique in that some of our members employ over 100 people, and if the taxes are sufficient and they can't generate those sales to offset those costs and they close, those people are unemployed. You just can't move into another place. That's the concern we had with the bill.
Mr Pouliot: Our former colleague, how are you?
Mr Davis: Fine, thank you.
Mr Pouliot: Very well. Thank you for taking the time and your ongoing interest with the people that you represent so well.
It's not very complex; you need not be a cynic. The federal government says, "Okay, regardless of stripes," -- it doesn't apply, doesn't matter, really -- "you will get $2.5 billion to $3 billion less." The government takes over, looks at the books and there's approximately an $11-billion deficit. But they made all kinds of promises and they're going to do what they said they would, and one of those is a $5.4-billion ticket, the tax cut in four instalments.
It's no big deal overall, but when it's compressed into one term or less, you have to find the money someplace. You know you're going to spend the same money on health because of the aging population; you can only cut so much, people will know that. You've made a commitment in teachers' classrooms. That's where the money is, those two. In general assistance, some money, but not as much as the first two.
So this is the secret here: You download or you pass the responsibility to the municipality. In your case, here's what happens. Whatever the benefits are -- and you get a tradeoff at the residential level; you no longer pay for education, but you pay for other services -- in your case, get ready, because they shoot to kill. You're caught. You're going to keep paying for education, and whatever shortfall there is at the residential level, you're going to have to make that up. That is the reality of the day. There's no escaping it.
What we're trying to find out with the opposition is, what kind of methodology are they employing? What are the formulas? Will we have time to come up with some alternatives, because it's not Bill 106, it's the webbing and the meshing of the Common Sense Revolution that's advancing on so many fronts. This is only one component, and it's not in isolation. You see what's happening with Bill 103. You will see what will happen next week with Bill 104.
Mr Davis: I'm just glad I'm not there.
Mr Pouliot: The parade is the parade is the parade. You're one of them, with respect, but those people will eat their young, Bill. Be careful.
I thank you for your representation. I hope I could say there is a message of hope and so on. Unless they put the breaks on -- you know, there's light at the end of the tunnel: It's those people with a freight train. You don't have a chance here, just pay and pay and pay some more with those people.
Mr Davis: Gilles, you're as eloquent as always.
The Chair: I didn't hear a question there, so perhaps we'll move to the government side.
Mr Rollins: Thanks, Bill, for coming in today with your thoughts. No, I'm not a car dealer, but I've been in the service station business and repair business for 30 years, so I have some idea what moving about is concerning, because I've been at one location for that length of time.
Do you feel that it's a good idea to remove the BOT?
Mr Davis: I think it is as long as it's distributed equitably back into the business community, and I think the residential community has to take a look at that as well. I think as this bill progresses there really has to be a meshing down the road of municipal and provincial members to look at how we do those tax structures.
I think this is the beginning of the whole reform of tax structures, but our concern is, because you're a local politician and you're responsible to the local people, it's a lot easier to transfer those additional costs to the business community because we have one vote. That's really what the reality is.
Mr Rollins: In fairness, you have one vote, per se, as the owner, but with the number of people you have employed and working there, you have a lot more than one vote.
Mr Davis: The unions can't get all their people to vote for one political party, and I doubt we can get all our people to do that.
Mr Rollins: I know, I realize that. But I think there has to be a fairness in the levelling of the load we have to carry. When you look at the most use for that land tax and then for the building, is there a better way that you could think of doing it?
Mr Davis: As I read the bill, it said it would be, for residential, on the actual value of the land. I don't know if you do buildings or not. But as I read it, it looks like for business and industrial if there are buildings on it, it's going to be actual value; if there's land as well, which there would be, then it's going to be what I would call market value or the best use. That's what they did in the MVA, and that drove the tax increases -- I mean, they just went out of sight.
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In the Metro area, 66 of our dealers saw increases and about half of them saw increases that were over $50,000 and some were up to $200,000 and $300,000. That is just unrealistic. I think you really need to look at that. If that's what you mean in the bill, then what the municipalities will do is tax the land at its best value.
A prime example is a dealership up in the middle of Toronto. It sits on a piece of property that's worth a lot of money. If I were the assessors for what will be the megacity, I'd say that would have a better use as a commercial building, office building or high-rise apartment, and so I would tax them.
If you look at New York, I understand there are not a lot dealerships in the centre of New York because they were taxed out of business. That's the reality of that particular section that we're really concerned about.
The Chair: Thank you very much, and we appreciate the automobile dealers' association's presentation today. It's always a pleasure to welcome a former member of the House.
Mr Davis: Thank you. I'm just glad I'm not there.
BARBARA HALL
The Chair: We now have the pleasure of welcoming Her Worship Mayor Barbara Hall from the city of Toronto. Your worship, we have 20 minutes to spend together. If you'd like to make a presentation, we can fill any remaining time with questions.
Ms Barbara Hall: Thank you, Mr Chair. It's a pleasure to be here again. This is the second time this week I've appeared before a provincial committee considering legislation which directly affects the city of Toronto and, for that matter, every municipality in Ontario. That's not surprising when you consider some of the current provincial interventions in the municipal sphere: Bill 103 and amalgamation; Bill 104, the education changes; Bill 84, firefighters' regulations; and Bill 106, the legislation before this committee which proposes changes in the area of property tax.
All of these bills will impose far-reaching and, in some cases I believe, drastic changes on much of Ontario and particularly on Metropolitan Toronto. The storm of legislation pounding Toronto threatens to wash away the carefully planned attributes which have made it the best place in which to live and work.
I have several specific concerns with this bill, but my central message to this committee today is that you need to consider this bill in the broader context of the massive changes being proposed by this government. Change breeds uncertainty and occasionally chaos. Those are forces which our citizens don't want to see unleashed in Toronto. There's too much at stake in the way of jobs, investment and quality of life.
Currently, the city of Toronto has a patchwork of property assessments. Some residential assessments date back as far as the 1940s. Multiresidential assessments are almost four times that of single-family residential assessments. Property assessments on businesses vary greatly with a business occupancy tax that dates back to the turn of the century.
The system is antiquated. Few people would question the need for change. Examples abound of assessment discrepancies between houses of similar value on the same street. I know, for example, that there are many inequities on my own street in Cabbagetown.
But just as it has taken decades to get to where we are today, reform, however well intentioned, needs to be phased in over time. Reform must ensure equity, but it must also provide certainty for taxpayers.
Just consider the magnitude of the challenge involved in changing the assessment system in Metro Toronto. The new system is supposed to take effect January 1, 1998, a mere eight months from now.
Meanwhile, the Ministry of Finance is in a race against time, frantically working to reassess 3.8 million properties containing some 5.6 million assessable units. These same reassessments are to be delivered to municipalities no later than April 30, 1998.
In the city of Toronto alone there are over 152,000 properties to be reviewed and more than $1.8 billion of property tax revenue at stake. It's clear that 1998 will be a year of tax volatility. In fact, it will more than likely turn into a year of tax revolt.
Consider the factors in Metro that will destabilize the property taxes paid by all of our citizens, be they homeowners, tenants or business owners. Tax changes can be expected from several directions: through the reassessment of all properties; through future change to existing tax rates; via the $531-million added cost of the proposed downloading of provincial programs; in the method by which the province plans to tax business owners for education; because of pressure on municipal revenues from current property tax appeals; or to pay the hundreds of millions of dollars in transition costs from the forced amalgamation of the Metro municipalities.
Added to this volatility is the fact that the Fair Municipal Finance Act is really an attempt to reintroduce market value assessment under a new name. The government insists there are differences between the proposed current value assessment and market value assessment. But a closer look suggests otherwise.
The government claims that Bill 106 allows seniors to defer taxes. Seniors have for years been able to obtain reverse mortgages on their homes, if they have enough equity, to pay taxes or for any other purposes. Bill 106 merely adds municipalities to the list of private lenders. There's no gain here for seniors.
Bill 106 reduces volatility by averaging the values from three years. Under the timetable within the bill, three-year averaging doesn't begin until 2006, but the existing Ontario MVA does feature three-year averaging. So Bill 106 would temporarily remove averaging that already exists.
Bill 106 offers phase-in periods of up to eight years. Metro offered an even longer transition with its 1992 MVA plan. It was left open-ended as to when transition would be completed.
This is simply MVA all over again, with the government offering little real protection for property taxpayers. In fact, as I've said, some existing protection is being removed.
The instability of market value assessment during a time of rising property values is well known. Similarly, the use of a market value approach is devastating to properties vulnerable to speculation. This scenario is too dangerous to the economic health of our city to be acceptable.
Where is the information on these issues? Where are the impact studies? Where are the reports proving a transition of this magnitude can be properly managed? Regrettably, the provincial government can't answer these questions. That too is unacceptable to the citizens of Toronto.
Months ago, the city asked the provincial government for any impact studies of market value assessment on our neighbourhoods and individual properties. To date, we've been stonewalled. More recently, we were advised by the Minister of Finance that the studies would reveal the substance of the deliberations of cabinet which took place in March 1996 and were therefore not to be made public.
The government's refusal to be candid with the taxpayers of Ontario is simply outrageous. The only information available lacks the detail needed to craft a sound tax policy. We need neighbourhood-by-neighbourhood figures, which this government refuses to release.
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Recently, the Information and Privacy Commissioner ordered the finance ministry to obtain the Premier's consent for the release of the impact studies. Rather than obeying the order, the finance ministry has challenged the commissioner's authority. I call on the Premier today to end the secrecy and give the taxpayers the facts.
How bad is the impact of reassessment on the taxpayers and neighbourhoods of the city of Toronto? What is the ministry trying to hide?
How are we to plan and work with our citizens in an environment of secrecy? How does such an approach provide certainty to property taxpayers?
The reckless and hasty transition to the new system will be anything but smooth. Property taxpayers in droves are certain to appeal their new assessments. Initial estimates from the chair of the Assessment Review Board suggest that some 600,000 appeals will be filed province-wide in 1998 alone. But coupled with other pressures on taxpayers and the uncertainty of implementation, the appeal numbers are likely to rise far higher.
What measures will be in place to manage such a problem? What is the likely success of these appeals and the implication for municipal revenues? Nobody seems to know. Are these concerns unfounded? Not when you look at what happened in Winnipeg when reassessment was introduced in 1987 in a haphazard and rushed manner.
A 1996 inquiry into the 10-year property tax fiasco there describes a system quickly and completely overwhelmed by appeals. Of even greater concern for those worried about stable municipal finances is the fact that the level of refunds was grossly underestimated.
The inquiry's report said this about appeals: "While prior to 1987, annual appeals numbered at most in the hundreds, the new era produced thousands of applications for revisions. Between 1987 and 1989, approximately 22,600 appeals were filed by taxpayers. The board of revision was still dealing with many of these appeals when, in 1990, it received 12,230 more. Between 1990 and 1993, approximately 34,000 appeals were filed by property owners."
The inquiry also found that many of the appeals ended with huge refunds for high-dollar commercial properties. Winnipeg had underestimated its exposure in this area by $54.5 million as of February 1996. Imagine the number of appeals in Metro and across the province if this goes ahead.
As well, the proposed legislation appears to leave local governments at financial risk on existing tax appeals. It prevents municipalities from recovering the school board portion of tax losses on successful appeals not processed by December 31, 1997.
In the city of Toronto alone there are over 90,000 outstanding assessment appeals. Our forecasts suggest a revenue shortfall of $117 million on the education appeals alone. Municipalities and their citizens expect any property tax changes to be revenue-neutral at the very least. Instead, Bill 106 places an additional tax burden on taxpayers.
On March 21, I wrote to the Minister of Finance outlining my concerns in this area. I'm still waiting for a reply.
How will local concerns be protected under the new legislation? The Fair Municipal Finance Act provides significant discretion to local governments in the phase-in of property tax changes and the ability to tax property classes at different rates.
In the hands of experienced municipal staff and a municipal council familiar with the needs of its citizens, these may be welcome tax policy instruments, but with the data hidden away in the finance ministry, we have no way of knowing. In any case, the proposal to amalgamate Metro Toronto and to transfer taxation powers to a new megacity severely dilutes the effectiveness of these new tax policy instruments.
Furthermore, taxpayers have no way of making their concerns heard by a level of government they have rejected and that has yet to be created. Under these conditions it is difficult for the public to have confidence in the new system.
Where do the changes leave the business community? Certainly the removal of the business occupancy tax, as recommended by David Crombie, is a long-overdue reform. The tax is outdated, is applied without rationale, is difficult to collect and requires additional spending to administer. But cancelling it is one thing; how to replace the lost revenue is quite another.
In Metropolitan Toronto alone, $653 million is collected annually through the business occupancy tax. This is a substantial amount, representing 14.5% of all property taxes collected in Metro. Yet to be determined is how these funds will be collected under the new system and who will shoulder the burden. Where will the changes leave our local neighbourhood retailers, our corner stores and family-run small businesses?
What about the arts and culture industries, which are important players in Ontario's economy? They are particularly vulnerable to the negative impact of higher assessments. While the proposed regulations address the needs of golf courses and ski resorts, they are silent when it comes to non-profit cultural properties.
These are just a few of the critical questions facing our city and its citizens, but they remain unanswered.
Bill 106 and all the other pressures on local property taxes combine to produce a dangerously volatile situation. Forced amalgamation and the downloading of provincial programs, mixed with property tax reform, is a rising tide which threatens to swamp the economic engine of Ontario.
Taxpayers deserve answers to their questions. To have proceeded this far without addressing these concerns has been a mistake this government will regret. I urge you to step back and take into consideration the potential for chaos embodied in Bill 106.
The Chair: Thank you, your worship. We have about three minutes left, which would leave one minute per caucus for a comment or a very brief question.
Ms Bassett: Thanks for your presentation, your worship. You made many points, and of course we like to hear input. That's why you're here; that's why we're here.
I want to pick up on your comment about the lack of figures in terms of the assessment and point out to you that a sufficient sample of assessment data is going to be made available this summer for municipalities and more information will be made available to municipalities in the fall. As you know, we are reassessing, so anything we gave you would not be up to date. We are waiting for the opportune time to give it.
The province, as you also probably know, is investing $60 million to obtain up-to-date assessment data, and we will be making them available as soon as we can obtain it all ourselves. Then we also will be assisting municipalities in interpreting these data, because they could be putting tax policy measures in place, and we'll help them to do so. That's just our statement on that. There is a very good reason. We wouldn't want you to be basing your work on things that were inaccurate.
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Mr Phillips: So the bill gets passed and then we'll finally find out its implications.
I agree with you totally, Mayor Hall. I don't think people understand how delicate the city of Toronto is. It's like a sensitive ecosystem. I used to be chairman of the Metro school board and I insisted that our offices be in the Toronto school board, because I thought it important for suburban trustees to come down and understand the needs of the downtown. I don't think you overstate the damage that can be done to this sensitive urban ecosystem. It's a unique urban environment, working mainly because of people, thousands of people who are contributing on a daily basis to their community. There's an old saying that Ontario keeps Canada together because Canada likes to hate Ontario, and Ontario is kept together because people like to not like the city of Toronto.
Ms Hall: I used to live somewhere else. I know what you mean.
Mr Phillips: I really don't think you're exaggerating. But I don't know how to stop this bill. It will be passed. We can't get the information, and that's deliberate. I think they know that if they provided the information, there would be a firestorm. As Ms Bassett said, "The information will be available in the summer or the fall." At that point, the bill is law, it's gone, it's done, and it prescribes how you have to handle things, that you've got to deal with taxes in a certain way. You'll know how bad it is, but you just won't be able to change it.
I despair of the combination of things, as you point out, and the education bill will have the same impact in Metro Toronto, I can assure you. The reason that communities in the city of Toronto have been strong is because nobody had to worry about the quality of education in their local schools.
Mr Pouliot: Thank you again for your time, your worship. This sounds like the next Bre-X annual meeting. There are a lot of questions but very few answers.
I want you to help me. I live so far away from Toronto and I find it terribly sophisticated, urban, diversified. It's quite a challenge. Suppose for a moment -- and I need your help, your worship -- that I live in the city of Toronto and I just moved in December 31. I get my interim tax levy, which is based 50% on this year's taxation. I'm also aware that throughout the province, your fiscal year starts on January 1 and the provincial fiscal year starts on April 1. Having read the dailies, I'm also very much aware that assessment of all those units, the largest endeavour in North America, is about to unravel on April 1. I'm also aware of government legislation stating that you have new responsibilities. I'm aware of your campaigning because I checked things before I moved in, and it was right in the middle of November, the last days of your political campaign. You were trying to cost that.
When all is said and done, you're the victim here. You're the target. You have to find half a billion dollars. You don't even know what you'll be responsible for. You don't even know how much those services will cost. You don't know -- how can you? -- the results of the assessment. When you don't know, your citizens, those whom you represent, begin to circulate rumours, and they take on extraordinary proportions. Anxiety leads to fear.
We're asking the same questions. They're embarking on a revolution of unprecedented proportions. The trick here -- what about stability? What about knowing step by step when you slow things down?
There are two kinds of politicians the modern-day citizen will not tolerate: One is a politician who doesn't attempt to do what he said he would. The other one, in view of changing circumstances, is a politician who will do exactly what he said he would regardless of circumstances. In there, there's equilibrium and a balance.
Thank you very much. You carry a lot of foresight. People are not for or against, because people don't know, but all this happening all at once disturbs my stability. I can only digest and assimilate so much, but if you give me too much I get a little confused. Are you going to run again?
The Chair: Thank you very much. Is that a speculative question? Mayor, you may have a few minutes, if you wish.
Ms Hall: I mentioned at the beginning that I've been here earlier this week. As mayor of the largest city in this province I would love to come here to sit down together and work in partnership on issues of change. We live in a time of change. Everyone in government has great challenges ahead, and certainly on a whole range of issues, including tax reform, I have advocated change for many years.
My sadness is that, for example, the impact information is not being given to us so that we could sit down together with you and figure out ways to solve the problems in a way that will be healthy for the community. I would love to be here sitting down together and finding answers to problems as opposed to feeling that I must come here and just be critical.
The Chair: Thank you very much. We appreciate your taking that time to come to us today.
KAY GARDNER
HOWARD JOY
The Chair: We now welcome Councillor Kay Gardner from ward 15 in the city of Toronto. Welcome to the standing committee on finance and economic affairs.
Ms Kay Gardner: Thank you very much. I would like to introduce Councillor Howard Joy from ward 14, a part of our north Toronto group of councillors who are opposed to MVA, AVA or whatever else you wish to call it. We're going to share our time.
Mr Chairman and members of the committee, for five years in a row now, from 1993 to 1997, the city of Toronto has not increased its share of the property tax, but the government of Ontario appears to be hell-bent on destroying that winning streak in 1998.
The mayor and councillors have been advised that Bill 106, the MVA bill, would cause an estimated average property tax increase of 19.7% on single-family homes and duplexes in city of Toronto. Twice before, the city of Toronto defeated Metro's attempts to impose massive MVA tax increases on homeowners, tenants and merchants. Each time protests by Toronto taxpayers led the Liberal and NDP governments to refuse to implement Metro's flawed tax scheme.
Some of you will recall that the last time, retail merchants took to the street, staging protest marches on Yonge, Eglinton West, the Danforth and many other major streets in the city of Toronto. Does the committee think for one moment that shop owners and homeowners will not be enraged by this revival of MVA? Members of the government should be aware that an overwhelming majority of city of Toronto taxpayers, in fact 78%, formally rejected MVA in a referendum conducted during the 1991 municipal election.
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When Metro first proposed the implementation of MVA in the 1980s, the Liberal government made public an impact study that told precisely the change in taxes that would result on each and every property. But the present government refuses to release an impact study. Why? Why this coverup? Even our application under the freedom of information act for the release of the study has been refused because, we are told, it is a cabinet document. Don't the people of this city and this province have a right to know what kinds of tax increases they're going to be asked to pay?
We can safely predict that the largest and most widespread property tax increases will strike hardest in ward 15, which I represent, and in ward 16. That was the effect of the first two MVA proposals which were eventually rejected by the Liberal and NDP governments. In ward 15, 76% of all property taxpayers were faced with MVA increase, some of more than 100%.
I'm quite aware that Bill 106 does not once mention MVA but instead uses the term "current value." Every informed person knows that "current value" is the same as "market value," and "market value" is a dirty word in this city. Enactment of this bill will provoke a wave of public anger in my ward and elsewhere in the city of Toronto.
As you are aware, Globe and Mail columnist John Barber has twice said the name has been changed so as to camouflage Mr Leach's election promise. Indeed, Mr Leach first called his plan AVA, actual value assessment, but that sounded too much like MVA, so now Bill 106 refers only to "current value."
I wish to touch very briefly upon a subject first raised at your Tuesday hearing, and that is the written 1995 election promise of Isabel Bassett, a member of this committee and my MPP. She said: "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" -- but obviously not very firm. Ms Bassett says she has changed her mind for the common good. Why didn't Sheila Copps think of that?
In my ward there are many homeowners, tenants and merchants who are also constituents of Ms Bassett. I wish to assure this committee and Ms Bassett that MVA is rejected more resoundingly in my ward and ward 16 than anywhere else in the city of Toronto. My constituents have always said, "No way MVA." They do not see MVA being for the common good or fair. Now they'll say "No way CVA," and you can be sure of that. I respectfully appeal to Ms Bassett to do the honourable thing and keep her promise by voting against Bill 106. The only other way out, in my view, is for her to resign and seek redemption in a Copps-style by-election.
Of course it is the duty of every member of the Legislature to keep his or her election promises, but it is incumbent on cabinet ministers to set an example in this regard. You will recall that the Honourable Al Leach, one of the two architects of this bill, published an election flyer in 1995 which said, "My party and I will never support the imposition of MVA on Metro Toronto," and I have here copies of both Ms Bassett's and Mr Leach's promises to the citizens of the city of Toronto.
Let us not forget that MVA increases will be on top of any provincial downloading on to the six municipalities because of amalgamation, the other "fair" thing that is being done. The original downloading plan would have increased taxes by 10% on average across Metro.
There is a legion of taxpayers in my ward, among them especially the elderly; half of my ward are elderly and tenants -- who are truly afraid of the spectre of any tax increase. During my two previous campaigns against MVA, many elderly women wrote and phoned me tearfully about the prospect of losing their homes. I implore you to recommend to the Premier that the government withdraw this unfair and clearly destructive bill. Thank you very much for allowing me to speak to you today.
Mr Howard Joy: The current exercise of reassessment of property values has upset your provincial staff tremendously. They cannot possibly cope with what normally takes four years to do in 18 months. The private sector refused to even consider doing it in 18 months. A Vancouver expert in AVA told the provincial government not to try to reassess four million properties, the largest reassessment project in North American history, in less than three years, but the government has insisted that it will be done in the 18 months' time that it has allotted.
Be prepared for a deluge of property appeals as this will be the poorest-quality reassessment ever done in Ontario. Appeals cost money and undoubtedly will make this the most expensive reassessment of all time. Even when done properly, MVA or AVA or current value is an expensive system. Being a subjective calculation, there are always appeals, and appeals cost money and result in lost tax revenue. Based on the Winnipeg experience, it has been calculated that this first go-round could well cost Ontario taxpayers $800 million. Ontario taxpayers cannot afford that, nor can they afford any system so prone to appeal court challenges.
There are alternatives. California, Israel and the UK have systems that are well supported by the taxpayers. Why do we have to have the most expensive system in the world, a system that taxpayers can ill afford, that they cannot understand and therefore must appeal, that is subject to huge fluctuations and that they have overwhelmingly voted against in referenda? The province gives lip-service to local option as long as the system itself is not an option.
It is a system that we don't like. It is objectively unfair, unpredictable, expensive to administer and subject to erosion through appeals. We urge you to look at alternatives as noted in California, Israel and the UK.
Your government will tell the regions how much property tax they have to deliver. It should be the municipalities' option which system best suits their taxpayers, especially when the taxpayers will be paying for all the intrinsic cost, and especially, as our taxpayers have said, when they do not like market value assessment.
This provincial government does not have a good track record for following expert advice. They have ignored Anne Golden's advice to provide $200 million to phase in the tax shifts and they have ignored David Crombie's advice to assess properties at their current use value, not at their potential highest and best use value. Thank you, Mr Chairman and members of the committee, and thank you, Kay Gardner, for letting me share your time.
The Chair: We have about two minutes each to ask questions. With the last questioner I broke the sequence. We will go back to pick that up and begin with Mr Pouliot.
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Mr Pouliot: Thank you very kindly. I recently saw a small, brief newscast and it was about cloning. If I was to go to a DNA lab or a forensic study lab and I was to try to see the difference between market value, actual value, current value -- isn't it all the same if you're about to be reassessed? The differences are so small that you wear one colour of socks one day, another colour the next day. But grosso modo, people are talking about the same; in fact most people still call it market value assessment. I think it will clear the air because we can spend time and emotion to decipher what is essentially the same.
This is a big mess, or it has the potential of being a big mess. I think there are ways out: time, explanation; not time to delay, but time to implement the right way and in the right order with the same resilience, the same philosophical approach, if it suits your purpose, if it suits the cause. For instance, you have a continuous -- imagine that. You just got reassessed. It hasn't happened, let's say, since 1950 at your building or 1904 or whatever, and then the following year you get reassessed again. Continuously we get reassessed. The marketplace does not like uncertainty. The marketplace will respect stability. Can Toronto all at once have an assessment that it hasn't had for years or a reassessment and then the following year the fluctuation that the assessment and other endeavours have brought to the marketplace?
Why not an average of three years? Why not a little more time and you can achieve in an orderly fashion. I'm just wondering now whether I should watch what Standard and Poor's and other bond rating agencies will do and try to pick up your debenture or whether somebody should voucher on the housing market. I don't know. Even speculators want to know, want to have an even chance. They know it's a speculating game. There are many lives here. There are many possibilities without meaning to do so that people will be impacted and they don't know. I would just ask the government, plead with them, listen: Do what you wish, you've got the majority, you'll have your way, but do it in an orderly fashion.
Ms Gardner: I agree with you. We've waited 50 years. As you say, we haven't done it for 50 years, so another year or two is not going to make that much difference. Do it right.
Mr Ford: Councillor Gardner, taxpayers have been asking for fairness and equity in the tax base in Metro. They have also been asking for accountability for their property tax. We're giving municipalities the power through Bill 106 to introduce farmers and equity in the property tax system. Fairness, I should say, not farmers -- we were talking about farmers before.
We were just talking with the mayor a very short time ago and she said the property assessments in Toronto are a patchwork. Some residential assessments date back to the 1940s and some of the business taxes and different things of that nature to the turn of the century. You say go slow. How slow do you want us to go? To stop?
Ms Gardner: Not at all.
Mr Ford: I'm just talking here. Do you want us to stop at a tax assessment in the 1940s? Would you like to be paid in 1940 wages?
Ms Gardner: Not at all, but I have fought for a wage increase --
Mr Ford: Then I had another gentleman from the South Eglinton Ratepayers and Residents Association, Harold Pidduck, and he was saying the senior citizens in his area have incomes from the 1930s, to 1940s, to 1950s. I mentioned to him in the 1930s you could buy a car for $400, in the 1940s you could buy it for $800 and in the 1950s $2,000.
If we don't get these tax bases and fairness across the board up to date, the whole damn thing will collapse around your ears and our ears. This is why we're bringing it up to date, because we have to pay firemen more money, we have to pay you more money, we have to pay everybody more money and it just isn't a stagnant situation. It's an ongoing situation.
I understand where the senior citizens are coming from and I have a great deal of sympathy for them because I am at that stage myself. But they have to realize one thing: time moves on, so does the property tax, so does everything else. It has to be equilibrium across the province till we get equity across the province, not only in Toronto but the rest of the province. You can't stand still. If you do, you get rundown conditions, poor services and everything else.
Now, the senior citizens with their equity in their house, if they bought it in the 1930s like some of them said in our recent meetings, would they accept the price that they paid for that house? No. Why not? Why wouldn't they? Because they know there's more equity in that house. But they want the tax rates to be back in the 1940s and the 1950s. This doesn't make sense at all.
Ms Gardner: That's not true. They don't want that.
Mr Ford: Well, some of them are paying rock-bottom prices on their taxes and the equity is still increasing, and that's what we have.
Ms Gardner: Sir, if you talk about fairness, give us the impact studies. That will be the fair thing to do and then we'll talk about the rest of the fairness.
Mr Ford: That's right. We will be.
Interjection.
The Chair: Thank you, Mr Pouliot. I don't believe you're helping.
Mr Phillips: That may give you some insight into what we're dealing with here.
Mr Pouliot: The human dimension.
Mr Phillips: The problem we face is the one that you face, and that is that as Mr Ford just said, "Well, we'll give you the information," after this is law and you can't change it.
Ms Gardner: Yes.
Mr Phillips: They know what's going to happen; they know what would happen if they told the people the impact, and there's nothing quite as fundamental in a democratic society as telling the people who elect you, who you represent, what you plan to do to them. But it is a deliberate, calculated move to not tell you what's going to happen. There's no one in this province who does not believe change has to take place --
Ms Gardner: I agree.
Mr Phillips: -- no one in this province believes that it's fair now. But I will just say that you are not being given the information, we're not being given the information, we have a gun to our head and we're told, "You've got to approve one thing, the bill that they are putting forward."
I didn't mean to give a speech.
Ms Gardner: No, you're absolutely right.
Mr Phillips: My friend did, but he has provoked us a little bit here. I guess I'd ask you the question, why do you think the government is hiding the information from the residents, from the people of Ontario?
Ms Gardner: I suppose for the same reason they've introduced all the other bills: they've got to collect some money to give a tax rebate to people who don't need and want a tax rebate. All these bills introduced, unless they take away our right to vote, I'm afraid they've had it, because there isn't anybody who's not angry with what is going on in this province today. People come to me and say, "My God, I voted for these people. How did I ever get to do that? I'm never going to vote for them again," all kinds of people. I'm just disgusted with what's going on.
Mr Pouliot: If you're rich, it's okay. Mr Stronach will get $200,000.
The Chair: Thank you very much. I think we've exhausted our time on this, and we appreciate, Ms Gardner and Mr Joy, your coming in and presenting to us today.
Ms Gardner: Thank you for hearing us.
HOWARD JOHNSON PLAZA-HOTEL
The Chair: We now welcome the Radisson Plaza Hotel, which is sharing its time with the Howard Johnson Westbury Hotel in Toronto. We welcome Mr Durnford.
Mr Bill Durnford: I would like to thank you, Mr Chairman, and the committee for allowing me the time to speak to you today. Mr Vessely was called out of town.
My name, as indicated, is Bill Durnford and I'm the general manager of the Howard Johnson Plaza-Hotel downtown, formerly the Westbury, still affectionately known as the Westbury to a lot of people. My hotel is classed as a full-service, midmarket operation, catering for the most part to the leisure and bus tour market segments. We have 330 guest rooms, 18,000 square feet of meeting room space and employ approximately 140 people.
Like every other hotel within Metropolitan Toronto, we have been severely impacted by the unequitable level of assessment on our operation. Pannell Kerr Forster said in a report, if you have not already heard, that the "excessive levels of realty and business taxation are threatening the economic viability of the hotel industry in Metropolitan Toronto." I can assure you this is a true statement, both from a personal perspective and from having knowledge of the impacts at other hotels.
Tax arrears and receiverships have significantly contributed to the ongoing problems of the industry. My hotel was sold in 1989, went into receivership three years later and was subsequently taken back by the current owner. Since that time, the burden of exceedingly high property taxes has been the principal cause of the hotel's decline. A severe tax arrears situation now exists which the owner has to deal with on an ongoing basis. This has hampered his ability to fund any kind of refurbishment program and even forced the closure of our 225-room north tower in 1993, resulting in the loss of 20 to 30 full-time jobs. Further job loss occurred shortly thereafter when we were forced to close our in-house laundry facilities due to aging equipment.
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Unable to maintain a competitive product has resulted in a declining market share for our hotel. In order to attract as much business as possible, we must offer extremely low rates to particular market segments, rates that are below the late 1970s and 1980s. Lower rates obviously reduce the level of operating profit and eliminate our ability to pay property taxes and service debt.
It is my understanding that Bill 106, once passed, will provide hotels fair property tax treatment, that is, 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, such as variable tax rates which are crucial to the success of the legislation, and the provision enabling the minister to create new classes upon request from a municipality.
The legislation does contain a section, 2(2)(e), that causes the industry real problems and we suggest the government agree to amend it. Specifically, 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 the intent of this section is to enable the minister to support municipal objectives. However, the industry has been victimized for some 25-plus years by such discriminatory action and cannot agree that allowing for the possibility of such action to possibly occur in the future makes any sense at all.
Surely if these future municipal objectives are worthwhile and in the public interest, the government of the day would have no trouble introducing legislation. Allowing for a simple ministerial action will not guarantee an open process before such action would be implemented. It also, in our view, places unneeded pressure on the minister.
History clearly demonstrates that business, when placed against residents, cannot depend on the municipal levels of government to ensure it receives fair and equitable treatment, be it property tax or other areas of municipal responsibility. 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 in the form of lower taxes, then the establishment of the new variable tax rates is critical to meeting this objective. The finance minister, Ernie Eves, in his budget recognized that the hotels in Metropolitan Toronto were disadvantaged by property taxes that were higher than those of the commercial sector and would take action to address the 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 their ability to set these rates. My local councillor, Kyle Rae, and the majority of councillors in Toronto have been supportive in having these hotels being treated fairly. However, when 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 property tax reform flow through to us in the form of lower taxes.
It cannot be stressed too much that lower property taxes are the key to restoring economic health to our industry. Property taxes are my largest uncontrollable expense, approximately 20% of my revenues currently. Operating profit, however, is between 15% and 18% of revenues, thus a deficit. I can accept paying my fair share but I need the revenue from lower taxes to reinvest in my operation.
I would also like to state our conditional 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 it will now collect 100% of its assessment.
However, I am concerned as to the process a municipality would utilize to recapture this lost revenue. Currently hotels pay 30% rate for this tax. I believe that if a municipality does move to recapture this revenue, it must be done fairly and equitably. Given our past record of subsidization, this should not be the beginning of another form of it.
As with the variable tax rates. I urge the government to ensure that in the likelihood this amount comes back on to the property tax base, municipalities must do it in a fair manner. By that, I mean that they should not be able to download it all, or the majority of it, on a 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 of 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. Assessments based on a particular year can lead to an unrealistic assessment. A three-year blended average should eliminate the spikes and result in a fairer assessment which will hopefully take into account the business cycle virtually all hotels experience.
Before closing, I want to briefly raise the phase-in provision. We have been waiting for over 25 years for fair property tax treatment. Waiting for another eight years to receive the full benefits is tough to accept, especially with the possibility of the creation of a new subclass.
In summary, Bill 106 begins the process of providing my hotel and those of my peers with fair property tax treatment. It is unfortunate we have had to wait for so many years to be treated fairly. Please take the necessary steps to ensure that the fairness this bill will provide us is not thwarted by the variable tax rate process or by allowing new classes to be created by a relatively easy means.
Mr Phillips: One of the previous presenters mentioned the importance of tourism, which I very much support. I think that is a growth industry for us and one that also is kind of labour-intensive, so it has a big advantage.
Frankly, the challenge we face is that the bill the government takes credit for presents some significant problems for municipalities. That's the problem we run into. The elimination of the business occupancy tax: Everybody says to do that and the government has got some high fives down at the Albany Club for it, but it means small business is going to have to pick up a big chunk.
We heard from the municipalities the other day. You're not familiar with this but there's something on the farm tax rebate that the province used to pay. The province has got rid of that and simply said to the municipalities, "You cut your tax rate for farm property." The province again gets a high five from the farm community, but the municipalities have to now pick up the whole cost.
You have a very strong case here. The challenge is that it's $50 million or thereabouts of lost revenue at the same time as Metro Toronto is being asked to pick up another, what they tell us, $600 million of added costs from the province on social assistance and social housing. You're here and you make a very persuasive case on two fronts, one on fairness, and second that we run the risk of doing it to ourselves on tourism if we want Metro Toronto to be really a strong tourism area. Actually, your presentation is very good in that you point out the cost of this -- you've got a tower closed, you've got fewer staff and all those sorts of things.
That's a long-winded way of saying you've made a good case. The challenge for Ontario and for the municipal people is that your $50-million fairness means, in reality, that somebody, some other taxpayers need to pick that up. You could say, "Well, just cut expenditures." You've done your job and you've made a very persuasive case. I just spell out the challenge and good luck.
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Mr Pouliot: I can somewhat appreciate being placed in a position where, and correct me, 450 or 500 or 600 or 650 square feet would result in a residential tax, if you wish, in a tax of $5,000. If I was to charge $100 per day, that would take me 50 days of occupation just to pay for the tax. If I was running on a margin, and you do indicate this, 20% and your margin is 15% to 18%, that places you in a very precarious position.
Yet you believe -- and a bit of it is human nature. If you're placed in the context of choice and someone sees the opportunity to recoup your tax break, and then you have residential, there is one of you and there are more of the others to make it up, and the choice becomes -- one could impute motive and say you're running again. Let's face it, it's nice to help one, but it's nice to help as many people as we can. You must not be put in the position where there is a choice, it's either you or the other. I don't think it's fair to anyone. That's not the purpose, the intent.
However, the reality has to reflect that someone has to make up the slack. Somewhere along the line there is a bottom line and it has to come out in the wash. That's a dilemma the government will have to address.
There's also a point you make in your presentation which is consistent with what many have said, and that is, once it's assessed, take time, because there will be some adjustment; I wish to say dislocation but that would be unfair perhaps. But there will be some adjustment. We don't know. Why not play it a little safer because the results are not -- doesn't lead to catastrophe. Take two or three years. That you can blend your average and avoid the peaks and valleys, avoid the extreme.
I like your brief. It is the words of the Harbour Castle, your colleagues, and at the Hilton, the hotel industry in general, "Yes, we are, and we sympathize with everybody else, but the thing is, if you were to give us a break, let's see where it is," but don't, in conclusion, the phase-in. I'm wrong so often but it seems to me that if you're under, people will go and get the money. Those who have been waiting 25 years will say: "I can't wait eight years. Take me. My turn's up." Those who have to pay will say, "Why don't you wait eight years?" So there's another dilemma there but I'm sure it can be reconciled. I hope it can.
Mr Jim Brown (Scarborough West): I sense a certain amount of distrust for local politicians in your presentation. Maybe that's a strong word, "distrust."
Mr Durnford: That is a strong word.
Mr Jim Brown: Cynicism, wariness: You seem to be saying when faced with a voter and a business, who are you going to put the tax on?
Mr Durnford: We're just looking for an opportunity to be consulted, in some way. Municipalities are obviously going to be faced with assessing their tax revenues and we're looking for fairness, that if there are some additional tax burdens, and who knows what or if they're going to be, they're spread across every sector evenly. I think that's always been our argument, to be treated fairly as a commercial property.
Mr Jim Brown: But you're saying this Bill 106 is good news, but that you're worried about the local part of it, the municipality deciding to create an extra class or place an extra burden on, say, hotels, or hotels in the downtown area. So what are you suggesting? That the municipality can't do that, that the minister or the legislation spell that out?
Mr Durnford: We're hoping the legislation would be succinct enough to spell out the process in which that would happen.
Mr Jim Brown: If it did that and gave you a little bit more certainty, you might end up opening the other tower and re-employing -- how many people did you lose because of that closure?
Mr Durnford: Twenty to 30 full-time jobs in the form of room attendants, housemen etc were lost as a result of closing that tower. That's a direct immediate result.
Mr Jim Brown: So this is good news if you were certain it wouldn't be changed.
Mr Durnford: The owner is definitely not interested in committing additional dollars, and we're talking in the millions, possibly, in refurbishment and reopening towers etc, if there is not some certainty as to future tax assessments or how it's going to be handled.
Mr Jim Brown: If there were more specific guidelines in terms of classes and so on --
Mr Durnford: Definitely. The subclass issue is obviously a scary one for us as an industry because we've been experiencing that over the last 25 years and have been paying the price. So we definitely are looking for some equity.
Ms Bassett: If the tax were going to go on, how soon would you begin rehiring people or spending money? A year or two years?
Mr Durnford: That's hard to say. I can't really answer that question with any kind of certainty.
The Chair: We thank you very much, Mr Durnford, for coming in and joining us today and making your presentation. We appreciate it very much.
Is the Markham Association of Residential Condominium Owners present today? The Confederation of Residents and Ratepayers Association of Toronto, Mr Ritch? You've arrived. Do you need a moment?
Interjection: No, I'm not Mr Ritch. There are three of us going on for the confederation and the other two gentlemen are not here yet.
The Chair: In that case, since the Markham association is not here either and apparently has cancelled, we have 10 minutes. Suppose we have a five-minute break, which the Chair would appreciate. This committee stands in recess for five minutes.
The committee recessed from 1626 to 1634.
CONFEDERATION OF RESIDENT AND RATEPAYER ASSOCIATIONS
The Chair: We welcome the Confederation of Resident and Ratepayer Associations of Toronto: Mr Maguire, Mr Opara and Mr Ritch. Welcome to the standing committee on finance and economic affairs. Would you identify yourselves for Hansard as you start.
Mr Dale Ritch: My name is Dale Ritch, to my left is Brian Maguire, and next to him is Michael Opara. We're all on the executive of the Confederation of Resident and Ratepayer Associations in the city of Toronto. Mr Maguire is going to lead off and I'll make some remarks and Mr Opara will be the final speaker in our delegation. We've also got a few of our member representatives sitting in behind us today to observe our presentation. I'd like to thank them for coming out today as well.
Mr Brian Maguire: In that regard, would it be improper to ask each to stand and identify himself or herself?
The Chair: It's your time. You might mention their names as they stand up so that Hansard will pick them up.
Mr Maguire: Bob Barnett of the Sussex-Ulster Residents' Association, Al Fisher of Rathnelly Residents' Association, and Louise Dickin and David Thornton of the Moore Park Residents' Association.
I'm the membership secretary and co-treasurer of CORRA and I represent the North Hill District Home Owners' Association on CORRA, which is basically Forest Hill, and it's probably inherently more conservative than most of the areas, therefore one has to go to particular lengths to change that conservative predisposition. I'm also a member of the Tory St Andrew-St Patrick riding association.
Two important issues and the way they're being handled by the present government have certainly produced a lot of negative feelings. The first is the megacity, which I'll just briefly say produced a 71% No vote in our ward. Much of the reason for that was the total unwillingness and/or inability of municipal affairs to convey the idea through documentation and impact studies that the plan had been well thought through. To even think of dismantling and attempting to reconstruct a world-class city on such a flimsy basis in unthinkable.
I voted Conservative and I think of myself as supporting that philosophy, but the mark of the true Conservative is independence and individuality. The mark of a strict socialist is conformity and uniformity, and every worker is a drone or cog working for some greater good. Any means are justified to reach that end. Tory caucus members are being asked to take party positions that ultimately will impugn their personal integrity, and incidentally, the same thing would happen in the megacity because of the necessity of party politics to fund such large campaigns.
I bring this up because the actions by the government on Bill 103 and Bill 106 seem to me to indicate that normal democratic processes are being ignored to facilitate the government's ends. I've attended every public meeting in St Andrew-St Patrick and St George-St David on these two bills since the start, and promises were made going back to pre-election that have been ignored. You're familiar with the flyers issued by Mr Leach and Ms Bassett that promised no MVA.
On November 22, 1995, Al Leach held a public meeting at Rosedale United Church. It was chaired by the president of the South Rosedale Ratepayers' Association, Nigel Frawley. Among roughly the 80 people present were the president of the Summerhill Ratepayers' Association, Barry De Zwaan, an executive of the Federation of Metro Tenants' Associations, and myself as the director of the North Hill District Home Owners' Association, all of whom will attest to what was said there.
In response to a question from the audience, Mr Leach publicly stated that he would never impose MVA, nor anything even similar on Toronto, and if he did he would resign. Mr Leach says he likes a system known as AVA. In 1974 the Supreme Court of Canada ruled that the term "AVA" is interchangeable and synonymous with the term "MVA."
In the Toronto Star of May 2, 1996, Premier Mike Harris commented on Sheila Copps not living up to her promises and thought it was proper that she resigned. He was then quoted as saying, "I think it's reasonable that politicians who campaign in a direction or on a platform for things that are within their control, that they ought to resign or go back to the people if they in fact are going to change their minds." Mr Harris then said he would resign if he didn't keep his own pre-election promises.
Finally, on the use of the words "fair and equitable" by Mr Eves in connection with an assessment system, no assessment system is particularly fair unless it is related to income, and the more tax burden the property tax bears, the more onerous it is. We have many retired senior citizens in our area who bought homes there many years ago and because of the vagaries of the market will now be faced with tax increases of 60%, 70% or 80%. My own taxes would have gone up 100% had MVA been implemented in 1992. While that was the height of the market, who's to say that it might not rise again? To suggest that the reverse mortgage will mitigate this for these seniors is unconscionable. It would severely deplete their lifetime nest-egg.
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What many fail to acknowledge is that the market has been at work all the way along, and in those areas that may now have lower taxes than others, that advantage has been capitalized. To buy such a house, it will cost you much more than a comparable house with the higher taxes in the suburbs. The suburban house buyer will have a capital surplus to invest to offset the tax disparity. If a new system is selected, it should have a provincially mandated non-discretionary phase-in time long enough so that the market can adjust gradually without substantially affecting house prices, such as at least 10 years or more.
Mr Ritch: I want to say I'm delighted. This is the first time I've ever appeared before a committee at the Legislature where we've been ahead of schedule. It's a rather unusual circumstance but one that I appreciate.
I want to talk specifically about an aspect of Bill 106 which might be surprising to some members of the committee -- not the impact on homeowners, and I should say that CORRA is basically an organization, realistically, of homeowners. We have some tenants involved in some of our organisations but almost all of our 30-member associations, it's fair to say, are homeowners' associations. They're called residents' associations or ratepayers' associations, but they're really homeowners' associations. We have one business association that's affiliated with us, but I think the perhaps the most negative impact of this bill will be on the commercial sector in Metropolitan Toronto.
The members of the committee should appreciate that what market value assessment -- actual value assessment, current value assessment, they're all really the same thing, whatever the latest catchphrase is to describe it -- will do is impose a major shift of the tax burden from the banking sector and downtown office towers down onto the backs of independent small businesses which are located primarily on the commercial strips all across Metro, and there's no distinction here between the six cities in Metro.
More than $100 million per annum will be shifted, due to the current value assessment alone, from the large office towers downtown onto the backs of small commercial ratepayers across Metro. Just to give an example of the impacts here, and I take these figures from the technical appendix to the Golden commission -- a CD-ROM that was produced by the Ministry of Finance and circulated with the material of the Golden commission -- this report detailed the impacts on the commercial sector due to I guess then it was actual value assessment; now it's current value assessment.
Based on 1994 taxes, the average commercial ratepayer in the city of Toronto would actually appreciate a tax decrease of 8%. This is again largely because of the shift from the office towers downtown and the banking sector onto the backs of small businesses. In North York the average commercial ratepayer would get an increase of 6%. This is just due to current value assessment. In Etobicoke the average commercial ratepayer would see a 14% increase. Scarborough: a 24% increase on the average commercial ratepayer due to actual value assessment or current value assessment. East York, even more dramatic: a 29% increase. In the city of York a devastating, incredible 41% increase on the average commercial ratepayer due to current value assessment.
I want to bring to the attention of the committee the fact that there are no impact studies on how commercial ratepayers would be affected outside of Metro, in the 905 area or other areas across the province. Can you afford, as MPPs, to play Russian roulette with the business ratepayers in your riding? There is no reason to believe that the impacts on business ratepayers outside of Metro will be any less than they are within Metro.
I beseech you, then, before you vote for this bill, find out how businesses in your riding will be affected. Don't just blindly plunge ahead and ram this bill through the Legislature like you're doing with Bill 103.
I want to point out that this will be a tax hike that has absolutely nothing to do with the normal costs of business: things like wages, raw materials, interest, insurance etc. This is an arbitrary tax hike which will severely affect the bottom line of tens of thousands of commercial ratepayers across the province.
I want to remind all of you how a property tax revolt broke out in Ontario in the early 1990s. An industrialist by the name of George Lansens -- he owned some auto plants in a small town called Blenheim outside of Chatham -- in the early 1990s organized a municipal tax strike because of a market value reassessment that took place in the Chatham area in the early 1990s. Within months dozens of groups were set up in the blink of an eye all across the province, and these groups were a significant factor in getting the Tories elected two years ago. Frank Sheehan, the MPP for Lincoln, was a leader in this movement and you can ask him about it, the members of the Tory caucus.
Such a movement could easily spring up again. Remember, the implementation of the new MVA scheme is set for the first tax bill in 1998, only a year before your government will likely want to go to the polls. That's just over a year from now that those first tax bills will go out. I might add that the tax increases will be double in that first commercial tax bill because that will be the second bill which goes out to most businesses. In the case of a 24% increase in Scarborough, those businesses in April or May of 1998 will get a 48% increase in their property taxes.
I have to point out that there's another aspect of the bill that will multiply the tax hikes on the commercial sector across the province. This is the recommendation to abolish the business tax. Karl Mallette, an economist with the Canadian Federation of Independent Business, brought to your attention earlier in the week the problems with abolishing the business tax. As you know now, most of the independent businesses that are on the commercial strips pay their business tax at a 30% rate on top of their real estate taxes. The banks, for instance, pay at 75%; many of the large commercial tenants downtown pay at 60%.
Municipal governments will want to collect the same amount of taxes from the business sector after this bill goes through as before; make no mistake about that. I want to remind you that in Metro over 55% of the total tax take from municipal property taxes is from commercial and industrial taxes, of which commercial taxes are the vast share.
The tendency will be to bring all categories to 50%, the business taxes to 50% of the real estate taxes. I've got some numbers here on the city of Scarborough just to give you an idea of the incredible impact on the businesses in the city of Scarborough. Taking a typical business which is paying $5,000 real estate taxes now in Scarborough, which is taxed at a business tax rate of 30% to create $1,500 business taxes, they're now paying $6,500 a year.
What's going to happen after Bill 106 goes through as proposed by the government here? On that real estate tax bill, with a 24% increase -- that's another $1,200 -- your real estate taxes will be $6,200 rather than $5,000. If you take 50% of $6,200 real estate taxes, add on another $3,100 business taxes, you get a total tax bill of $9,300 instead of $6,500. You're looking at an increase of $2,800, which is a 43% average tax hike for businesses in the city of Scarborough. And that will be doubled because all that will go on to the one bill that goes out in May. So that will be an 86% increase. The average commercial ratepayer in the city of Scarborough will get an 86% increase in May of next year.
Think about that. And I want to remind you that the city of York is even worse. The average increase per business there on the real estate taxes is over 40%. I'd like to suggest, ladies and gentlemen of the committee, that your government has no mandate to bring in a bill of this type which will have such a devastating impact on the business sector in the province.
I want also to suggest that what we're looking at is a third-rate type of market value assessment. It's not at all what you proposed initially, 18 months or so ago, when you started talking about actual value assessment, and it's third-rate because of two factors.
One is the three-year envelope initially in the actual value assessment and what is currently in use in the province. The three-year envelope to average the assessments so that market fluctuations can be smoothed out has disappeared. All assessments will be based on market values on one day, which is June 30, 1996. This is a time of a lot of fluctuation, a lot of change in the real estate markets. This is just June of last year.
Second, it's a third-rate system, not a second-rate system but a third-rate market value assessment system, because you don't have professional assessors giving accurate assessments like you do in British Columbia. That's gone as well. Because of the cost of that, we've got a bunch of amateurs, a bunch of students out there doing fly-by-night assessments, and what you're going to get is a system that's full of cracks and holes and there's going to be all kinds of appeals with it, just like we currently have.
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So what you guys are trying to force on the province is a third-rate market value assessment system which is going to have a tremendous impact on the commercial sector across the province.
In conclusion to my remarks, I want to talk about the filibuster on Bill 103. CORRA wants to thank the opposition parties for organizing the filibuster on Bill 103. We think the Conservative government has no mandate to bring in amalgamation and has besmirched the integrity of the provincial Legislature by attempting to ram this bill through the House.
We believe this bill should be tied up at least until the downloading part of Bill 103 is put on the table. You've managed to decouple downloading, which of course we know is integral to the whole Bill 103, for a later time. We want the filibuster to continue. We're behind the filibuster 100%. We want to see the effects of downloading before this bill is brought before the House and passed.
In conclusion, we think this government has no more mandate to bring in Bill 106, a third-rate market value assessment system, than you have to bring in Bill 103. We are issuing an open invitation to the opposition parties to extend the filibuster to Bill 106 and we will do everything we can to support that filibuster if you decide to do that.
I want to thank you very much for hearing my remarks and I'll turn the microphone over to my colleague.
Mr Micheal Opara: My name is Michael Opara. I'm vice-chair of the Confederation of Resident and Ratepayer Associations in the city of Toronto. I'm a businessman living in North Toronto. I contributed financially to the Conservative Party in the last election and spent many days on the campaign trail. I feel stabbed in the back by what this government is doing.
This bill and the other bills, especially the megacity bill, show that this government does not listen, does not care what people want, will do the opposite of what it campaigned for, and in fact has been described, and I agree with this, as a dictatorship except at election time, as Tory Toronto city councillor Tom Jakobek stated.
When will you Tory backbenchers realize that this slew of bills, some of the worst of which are coming from Al Leach, will result in your not only being defeated in the next election but, as one well-known Tory told me the other day, you are going to be crushed in the next election? Probably only one of you -- you'll have to figure out who -- has a chance to be re-elected.
How much longer will you tolerate this kind of leadership from Mike Harris, Mr Leach, Mr Johnson and Mr Eves? It's like the captain of the Titanic, who said "Full speed ahead" through the ice fields so he could win the speed record. The only difference between those on board the Titanic and the government members is that those on board the Titanic knew it was sinking after it hit the iceberg and went for the lifeboats. Mr Leach doesn't seem concerned. Apparently he doesn't intend to run for re-election.
This bill is market value assessment pure and simple. Sure, you can call it by a different name, but it's market value assessment. You've heard people before tell you it's an unfair, expensive and unstable system. We at the city of Toronto have asked for a local option, and we would perhaps choose the commonsense unit assessment system. It means that communities decide for themselves and you won't have hundreds of thousands of property taxpayers mad at you in the next election.
I hope the opposition will send a postcard to each property owner hit by this tax increase and remind them that it was Taxhiker Harris and their local PC member who gave it to them. In the riding of Eglinton, our local member will be tagged with a $30-million tax increase for the residential homeowners. You think you'll be re-elected?
In my own case, I live in a 1350-square-foot house on a lot with a 25-foot frontage and a 150-foot depth. I pay $2,700 per year in property tax. With MVA I'll be paying about $4,500, and up to $6,000 dollars if you add in the downloading, the megacity costs etc. This has to be paid out of after-tax income. If I have to pay this tax, I guarantee that you on the government side will be paying.
Polls are lagging indicators and you are much further behind than today's poll of 5% suggests. I think you'll end up in third place if any of you get re-elected. This legislation is so ridiculous that the assessor has the right to revalue my home every year and enter my house. If I put in an extra bathroom, I get a tax increase. Did you know that one of the assessment criteria is the condition of the front lawn of your house? Are these Conservative principles: a government agent having the right to come into your house every year? You are providing an incentive to all people to let their property run down into a slum. Even the socialists abandoned this scheme. Perhaps this summer we should leave a patch of grass uncut on our front lawns as a protest. You can call it the Harris tax increase patch, or the Leach tax increase patch. This is market value assessment in action.
Another example: My elderly aunt put in storm windows and remodelled her kitchen. The assessor came by and increased her assessment by 17%. I appealed it for her. We won, but the following year she gets the new bill with the old 17% increase back.
The reverse mortgage? It's nothing other than government confiscation of people's property.
Here we have a minister in Mr Leach who campaigned against market value assessment and promised to resign if anything similar to MVA came in. Mrs Bassett ran against MVA as well. Here's a minister who mismanaged the TTC and who is now making you carry the bag for his incompetence and arrogance. To the opposition I say, keep up the filibuster, force the government to an election. To the government members: Remember in the First World War when the generals sat safely behind the lines and sent the troops charging over the tops of the trenches? Well, very few of them survived.
I'd like to also introduce George Teichman, past president of the Lawrence Park Ratepayers' Association; Dave Vallance, chair of CORRA and president of the Bloor Bathurst-Madison Business Association; Margaret Blair, planning advisory committee and past-president, I believe, of the Lakeshore Area Residents' Association; Wendy Arnett of Hillcrest Park; Richard Jessop, businessman and president of the Avenue Road-Eglinton Community Association and a vice-chair of CORRA. Thank you.
The Chair: Thank you very much. We have exhausted our time. We appreciate very much you coming in and sharing your views with our committee.
The committee stands adjourned until 9:00 am in Thunder Bay on Monday next.
The committee adjourned at 1658.