BOARD OF TRADE OF METROPOLITAN TORONTO
HOTEL ASSOCIATION OF METROPOLITAN TORONTO
CONFEDERATION OF RESIDENT AND RATEPAYER ASSOCIATIONS
GREATER TORONTO HOME BUILDERS' ASSOCIATION
HENRY OF PELHAM FAMILY ESTATE WINERY
CONTENTS
Wednesday 22 October 1997
Fair Municipal Finance Act, 1997 (No. 2), Bill 149, Mr Eves /
Loi de 1997 sur le financement équitable des municipalités (no 2)
Projet de loi 149, M. Eves
Board of Trade of Metropolitan Toronto
Mr John Bech-Hansen
Mr Michael Bowman
Industrial Sector
Ms Tayce Wakefield
Mr Iain Fraser
Mr Jack Walker
Orlando Corp
Mr Phil King
Canadian Opera Company
Ms Georgia Prassas
Ms Elaine Calder
Mr Michael Gough
Coalition of Public Theatres
Mr Charles Cutts
Mr Roy Reeves
Mr Glenn Garwood
T. Eaton Co Ltd
Mr Chris Appleton
Ms Karin Chepswick
Mr Marvin Goodman
Hotel Association of Metropolitan Toronto
Mr Rod Seiling
City of Brampton
Mr Peter Robertson
Confederation of Resident and Ratepayer Associations
Mr David Vallance
Greater Toronto Home Builders' Association
Mr Vince Brescia
Henry of Pelham Family Estate Winery
Mr Matthew Speck
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président
Mr Terence H. Young (Halton Centre / -Centre PC)
Vice-Chair / Vice-Président
Mr Wayne Wettlaufer (Kitchener PC)
Mr Ted Arnott (Wellington PC)
Ms Isabel Bassett (St Andrew-St Patrick PC)
Mr Jim Brown (Scarborough West / -Ouest PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. Douglas Rollins (Quinte PC)
Mr Wayne Wettlaufer (Kitchener PC)
Mr Terence H. Young (Halton Centre / -Centre PC)
Substitutions / Membres remplaçants
Mr John R. Baird (Nepean PC)
Mr Toby Barrett (Norfolk PC)
Clerk / Greffière
Ms Rosemarie Singh
Staff / Personnel
Mr Ray McLellan, research officer, Legislative Research Service
The committee met at 0912 in committee room 1.
FAIR MUNICIPAL FINANCE ACT, 1997 (NO. 2) / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS (NO 2)
Consideration of Bill 149, An Act to continue the reforms begun by the Fair Municipal Finance Act, 1997 and to make other amendments respecting the financing of local governments / Projet de loi 149, Loi continuant les réformes amorcées par la Loi de 1997 sur le financement équitable des municipalités et apportant d'autres modifications relativement au financement des administrations locales.
BOARD OF TRADE OF METROPOLITAN TORONTO
The Chair (Mr Terence H. Young): Good morning, everyone. We're on our third day of public hearings of the standing committee on finance and economic affairs. Our first presentation is from the Board of Trade of Metropolitan Toronto. Could you please identify yourselves for the record? Then you have half an hour to use as you wish; if you leave time for questions, I will divide it evenly among the three parties that are here.
Mr John Bech-Hansen: Thank you very much. I'm John Bech-Hansen, the staff economist with the Board of Trade of Metropolitan Toronto. With me is Michael Bowman, who is a volunteer member of our taxation committee.
Once again we'd like to take the opportunity to congratulate the government for bringing in a modernized property assessment system. As we have said before with Bill 106, it's the first provincial government to have the courage to bring in a new assessment system since the province took over the function in 1970.
We think there is some room to make improvements in Bill 149, but I want to draw attention first to one general overriding concern the board of trade has with both bills, in that in a sense they both strive to go quite far in preserving certain aspects of the status quo that we have in the property tax system today. I think one of the most important aspects of that is that we're moving to a system where there will be tax ratios in each property class and the municipalities will have some control over the distribution of property taxes between property classes, but there is no effort made to compel municipalities to bring those tax ratios closer together over time.
A second element, which comes in Bill 149, where we think there is too much of an attempt to preserve the status quo is bringing in graduated tax rates in the commercial class. That's most of what our notes speak to here. The idea of graduated tax rates in the commercial class apparently originated with the David Crombie Who Does What panel, which expressed the concern that identified small commercial properties which form a critical part of the character of local communities should be eligible for some special tax treatment, lower tax treatment, in relation to the rest of the commercial class.
I think that was a recognition of certain problems which arose in 1992 when Metro attempted to bring in MVA, because it was found that that was going to lead to very large tax increases on small retail properties. That arose because those types of properties have traditionally been underassessed in relation to the rest of the commercial property class. It has generally been understood that the reason they're underassessed is that a lot of small retail-type properties in Metropolitan Toronto do have a higher and better potential use, which tends to cause a certain speculative component to be embodied in the market value of those types of properties. The other consideration is that small retail properties did benefit from the 30% business occupancy tax rate, which is one of the lowest rates.
In looking at Bill 149, we can see that the David Crombie concept was greatly simplified. Instead of attempting to identify small retail strip properties specifically, there is simply a proposal to establish bands of value within the commercial class, to which differential tax rates will apply.
Much of what follows in our paper is an analysis of why we think this is not really a good idea. We sympathize with the idea of trying to bring favoured tax treatment to certain small business properties, but we have a general idea about that, which we'll explain at the end.
(1) First, the main problem with graduated tax rates is that it assumes that small businesses occupy small buildings and large businesses occupy large ones. By and large that is true, but it is certainly not universally true, so in a sense this becomes a program to assist small buildings and not small businesses. The practical effect of having graduated tax rates is going to be highly adverse for some. A muffin shop in First Canadian Place is going to be penalized by graduated tax rates; conversely, some chartered banks could derive tremendous benefit from this, because they tend to have many bank branches that occupy small freestanding buildings.
(2) The second observation is that 700 municipalities have reassessed in Ontario since 1970. All have done it without the benefit of graduated tax rates, and it has never emerged that any particular type of commercial taxpayer has been particularly hard hit by that.
(3) A third point -- and this speaks to our general concern about the legislation altogether -- is that it treats the underassessment of certain types of property as something fair and deserving of preservation rather than an aberration which needs to be corrected. We always feel the higher priority should be placed on providing tax relief to those properties that have been overassessed and thus carrying the freight for many years, particularly here in Metro.
(4) The fourth point, and this is more of a Metro-specific one, is that the preliminary reassessment data we've seen do indicate that there are going to be very, very substantial tax shifts just within the commercial property class and the other property classes. We think that's going to overwhelm any attempt by municipalities to meaningfully address those impacts through the use of variable tax rates. For example, it's shown that commercial businesses in the borough of East York can expect an average tax increase of 58% from reassessment alone, and that's small, medium and large businesses alike.
(5) Another point we want to raise is that small businesses have identified through their business association, the CFIB, that they don't wish to be cross-subsidized through different types of commercial businesses. That really is the intent of these tiered tax rates. They noted in their submission to this committee on April 8, 1997: "The CFIB opposes special rates for certain tax classes. The proposal to allow for new subclasses would in effect re-create the business occupancy tax distortions." They believe the marketplace is the best arbiter of business values and ability to pay. The CFIB agrees, as we do, that the real problem in the whole tax system is the inequitable distribution of the tax burden between property classes, predominantly residential and non-residential taxpayers, and it's the obligation of municipalities to begin to address that. That's the real solution to taxation of business.
(6) The sixth point is that graduated tax rates could potentially give rise to situations in which certain types of businesses could be running afoul of Ontario's anti-bonusing laws. I believe AMO made this point in their presentation to you on this already.
(7) Graduated tax rates could fail the test of horizontal equity, meaning that if you have two equally situated retail businesses with an equal size of real estate in their portfolio, but if one happens to operate out of a single, large, valuable property, they're apt to be paying quite a bit more property tax than one which might have the same amount of real estate but operating, say, out of 10 small stores rather than one large one. Why the difference in tax treatment for two equal retailers?
(8) The eighth point is that it could just distort the property marketplace. Wherever municipalities might choose to set the thresholds for different tax rates could lead to all kinds of tactics aimed at tax avoidance and it could distort the property construction market in very much the same way that the commercial concentration tax did between 1990 and 1993. It also tended to have threshold effects, because that tax did apply only to commercial property which exceeded a certain area threshold.
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(9) The final point is that we think it's going to prove divisive within the business community. Our organization is made up of small, medium and large businesses, and we don't like the idea of having to debate with municipal councils how they should treat different types of businesses. We would prefer that there be a level playing field between all of them and not have municipal councils making arbitrary judgements on the types of businesses that deserve favoured tax treatment.
First of all, our recommendation is that we don't have tiered tax rates, that all provisions in the legislation making reference to tiered tax rates be eliminated. By way of something of a solution to this problem, we think an appropriate course would be for the Minister of Finance to make regulations, as is provided for in Bill 106, to provide that the current value of eligible land be based only on current use if the land would otherwise have a higher current value because of other uses to which the land could be put. The adoption of those regulations is provided as a municipal option in Bill 106. So there is an opportunity there to shift the whole premise of property valuation in Toronto to value of property in its present use rather than the definition of current value in Bill 106, which is really very little from market value assessment.
That summarizes what we have to say about graduated tax rates. The rest can be dealt with very quickly. I really want to draw strong attention to symmetrical phase-in provisions. We mentioned this when we appeared here speaking about Bill 106, but we really want to drive this home once again because it is very important. One of the main reasons the provincial government rejected the 1992 MVA plan in Metro was because of the incredible unfairness in the phase-in provisions. The way it was going to work was that all residential taxpayers who were entitled to a tax cut would have got it right away, while residents who faced an increase would have had them phased in over several years. To pay for that scheme, business taxpayers were going to face exactly the opposite sort of phase-in scheme: immediate increases, phasing in of decreases. That would have caused a tax shift of about $200 million to the business tax in the cushioning of residential homeowners.
We really think the legislation has to be amended as necessary to specifically prohibit differential phasing in of assessment-related tax increases and decreases within a single property class; in other words, if there's going to be a tax change in different commercial properties, with some getting an increase and some a decrease, that they all be phased in in equal amounts over an equal period of time, and that the same should apply in the residential classes.
On the issue of vacant industrial property, the creation of separate classes to place vacant property in was an appropriate policy response to provide the tax relief that owners of vacant non-residential property need. The concern here is that the news release that accompanied the release of the bill indicted that vacant commercial would be taxed at 70% of the commercial rate and vacant industrial at 65%. Just to make the point very quickly here, this is less relief than is implicitly provided already to vacant commercial property when you factor in the 15% reduction in the mill rate and the absence of business occupancy tax. The Fair Tax Commission determined that the average amount of relief is more in the neighbourhood of 41%. Since that relief was legislated in various pieces of legislation, we think that could be entrenched in the bill as well and that the reduction should be no less than 40%. This would simply be providing what is already provided today.
The final point, on rights of tenants: We've been involved with the retail fair tax group, which I believe you've met with already. We are supportive of what they're asking for. I know they've laid out several alternatives by way of how far you might want to go, but certainly from the standpoint of access to information and requests for reconsideration or appeal, it's something we support. I won't go into the details of what their position is, because I believe you have it in hand.
That's it, and we'll take questions now.
The Chair: Thank you very much. There are approximately 18 minutes left, and we'll start this morning with the government caucus, for about six minutes.
Mr Bill Grimmett (Muskoka-Georgian Bay): I want to thank the board of trade for their presentation and for the suggestions they're making.
First of all you praised the provincial government for its courage in getting into this difficult area, and then you indicate that you would rather have had the province compel municipalities to bring effective tax rates to each property class. We feel that the use of the graduated rates provides municipalities with some opportunity to use their understanding of their local situation to help preserve some of the community flavour in their business sector. That certainly is something we've heard from some municipalities around Ontario, in talking to them. Do you have any comment on that?
Mr Bech-Hansen: Are you speaking about the graduated tax rates idea or tax ratios in general?
Mr Grimmett: The whole idea of allowing municipalities to some extent to treat different classes differently.
Mr Bech-Hansen: We have always recognized the idea of tax ratios -- we used to call them variable mill rates -- the idea that municipalities could have some control over the tax burden in each property class. We always felt that was a politically realistic way to deal with the prevailing overtaxation of business property across the province in relation to residential property. We knew it was not going to be realistic for us to ever say, "We just want a uniform tax rate for everybody," because that would tend to cause phenomenal tax increases in the residential class. I guess all we're asking for is that consideration be given to somewhat more of a compromise position.
Maybe our fear about this is a little bit motivated by what we hear from the two mayoral candidates in some of their debates when they've been posed these questions about how they intend to make use of these tax ratios. They're pretty ambiguous, but they certainly have the residential voter very much in mind when they're thinking about how they're going to use these powers.
Another thing on the plus side of the way the government has handled this is that when you have tax ratios and a uniform assessment system across the province, businesses will be able to directly compare in a very transparent fashion what their real burden is in one municipality compared to another. That might cause some motivation for the municipality to reconsider what it's doing.
None the less, the residential taxpayers really reign supreme, of course, because they are the voters, so we're not apt to receive a lot of sympathy around the province. That's why we really feel that perhaps some consideration could have been given that while there's an eight-year phase-in opportunity of assessment changes, perhaps that same time period could have been used to compel every municipality in Ontario to bring their tax ratios within whatever the allowable ranges are set by the province. We have no idea what those are yet, but that's really essentially what we're asking for.
Mr Grimmett: I should mention in passing that in the part of the province where I come from, there's a feeling among cottagers that the subsidization is the other way around, that the residential taxpayer subsidizes the commercial-industrial.
On page 3, you make a comment about the lifting of the business occupancy tax and the fact that you support it because it simplifies the assessor's task. You would have many members, some of whom have already been before us to make the case -- they were actually asking us to have the assessors continue to do that so they can sort out their leasing arrangement with the landlord.
Mr Bech-Hansen: That's right. That's the retail fair tax group; that's what they're asking for.
Mr Grimmett: Our assertion is that the marketplace should determine the relationship between the landlord and the tenant. In most cases, they have leases that already deal with this issue. What's you comment on that?
Mr Bech-Hansen: We're sympathetic to what the retail fair tax group is asking for, but ultimately, the government has to decide for itself whether the potential outcome of providing the group what it wants -- which is probably a higher volume of appeals and perhaps more work for assessors; I'm not quite certain about that -- is worth it. But there is an issue of preservation of existing rights, which is something that attention has to be paid to. Regardless of what the retail group is asking for, it's not quite as complicated as it is presently, because assessors today not only have to track the cost associated with each parcel of rented space in the building and use that to determine assessment; it's that they no longer have to track what type of business is occupying a type of property for the purpose of determining the business occupancy tax. That is a savings by getting rid of the business tax. Now it's just an apportionment of the realty portion; there's no more separate assessment for occupancy. That, as assessors told us, is sometimes a tricky thing to do, to determine exactly what type of business is being undertaken.
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Mr Grimmett: Don't you think your members are in a position to determine in the marketplace their relationship with their landlords or tenants in terms of sorting out how the taxes get paid?
Mr Bech-Hansen: The case has been made that the market can do that, but none the less, we feel sympathy for what the retail group is working for, just by way of preserving certain existing rights they have.
Mr Michael Bowman: I'd just like to add the caveat that the assessors use a fair market rent; in other words, they don't necessarily rely on the contract rent. Of course, for the landlords and the tenants, if you're asking them in existing lease situations to rely on the marketplace, that would be an unadjusted number. It doesn't take into account, for example, somebody who entered into a lease 20 years ago and has a very favourable rent compared to somebody who's just entered into a lease and may have a less favourable rent.
Mr Monte Kwinter (Wilson Heights): I was interested in your recommendation about eliminating the graduated tax for commercial property. Could you expand on that? It seems to me that there is a very great danger that people will immediately start figuring out ways to get around that, in the same way as you talked about the commercial concentration tax, where buildings would be designed to be just under the threshold, where there would be some very creative kinds of designations, things of that kind. Have you done a lot of work in that area?
Mr Bech-Hansen: We've merely discussed it at committee. When the commercial concentration tax was being debated, I'm sure we speculated about what the potential outcome could be, without being able to test it. You don't know until that happens. But there are certainly all kinds of tactics that could be used: condominiumization of existing commercial buildings to divide the ownership up into packages small enough to qualify for the lowest threshold rate of tax. That's just one of many things.
From a land use perspective that we have on this, which we've always had an interest in, in the broader context, we think tiered or graduated tax rates will create some pressure for urban sprawl and disincentives for land use intensification, because it's going to deter construction of high-rise office towers in city centres in favour of low-density development in the suburbs, and that's just inefficient from a land use standpoint and a transit access standpoint. That is just one of the considerations that has to be borne in mind. The commercial concentration tax also had that effect to a certain degree.
Mr Kwinter: Do you feel there's going to be a problem in administering this thing? My concern with the graduated tax is that there's going to be a certain amount of arbitrariness about it, where politically a municipality may decide that one particular industry has a greater benefit to the community than another, notwithstanding the actual value of the real property or their position in the community but because of the service they provide, and then you really do get distortions.
Mr Bech-Hansen: That's right. That's more of an issue in smaller towns without as much diversification in the commercial base as Toronto has, and that's sort of the flip side of our point 6 on compromising the anti-bonusing laws Ontario has. Graduated tax rates could also be used to, say, isolate a single large industrial employer in a smaller town and really hammer them to derive favour to other types of businesses in that same community.
Mr Kwinter: To pick up on the retail fair tax group, the concerns that have been expressed to me are that under this new proposal, the landlord would pay the tax, particularly in a strip and a shopping centre, and the retailer will not get his tax bill and will have to deal with the landlord and has no ability, other than through the landlord, to try to adjudicate or get some redress. Is that something your group has looked at?
Mr Bech-Hansen: That's the concern. We're just sympathetic to tenants being able to have reconsideration of assessment if they feel it isn't fair. We have landlords on our committee as well, and they take the case, "If the property is by any account over-assessed, legitimately we're going to appeal it; it's in our own best interests to do it for the benefit of the tenants." It comes back to a fundamental issue of preserving certain privileges that already exist. I guess most of our members would be tenants; they are not owners of the property. That's why we feel somewhat blind to this group's concerns.
Mr Kwinter: One of the things that was pointed out to me was that the tenants are the taxpayers; the landlords are the tax collectors, because they pass it all on anyway. They get assessed the tax, but they collect it from the tenants.
Mr Bech-Hansen: In a sense. That's always the way it's been.
Mr Gilles Pouliot (Lake Nipigon): Good morning, gentlemen; a renewed pleasure indeed. I expected no less of an observation commending the government. In fact, you used the word "courage," that it's the first government that has had the courage to address this issue. I couldn't agree with you more. It takes a lot of courage, because you're navigating in uncharted waters. We're about two months before a series of events is about to take place, and to this day we don't know most of the story which is about to unfold. You have a fiscal year which starts on January 1 for municipalities; you have a fiscal year which starts on April 1 for the provincial government; you have 3.8 million units being assessed across Ontario, the largest endeavour of this sort in North America. The ministry is fully expecting -- this is the government saying this -- at least half a million appeals. In fact. They're hiring people. It will take up to 18 months to process those appeals.
You mentioned AMO. Under that umbrella organization, they represent 95% of the populace of Ontario. They appeared before the committee yesterday. They're asking the government to raise the interim levy to go above the 50%. The members you represent must be aware by this time that when the municipalities go to the interim levy very early in the new year, the business occupancy tax will be factored in. This will be included in the new levy. If they expect a decrease -- AMO claims to have the pulse of the municipalities. If so, why would they ask the government to raise the 50% interim levy? Do they feel that in most instances there will be tax increases by way of amalgamation in your case, and also by way of reassessment in some other cases?
If I run a business in a good way, I would think that two months before embarking on this major endeavour -- before I use the word "courage," I would want to know what the regulations will tell me. Maybe the devil is in the details. We don't have an impact study. We don't know where the chips will fall. Given what's at stake, I would demand that we be given the database on which they operate, the criteria, what it is they're using to arrive at those figures. There's a lot of anxiety, and it leads to fear and confusion.
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Mr Bech-Hansen: I guess our modus operandi in dealing with any provincial government is that we're dealing with each piece of legislation as it happens. In the totality -- the Who Does What reforms, the amalgamation of Toronto, the changes in school finance and the assessment reforms -- I think anybody is going to say that it's pretty overwhelming and it is very hard to know the final outcome of it all. We've been on record that we don't agree with the particular aspects of disentanglement that the government has pursued, with the increased sharing of social services at the local level, but that's just not an issue in the debate over this particular bill. We have to treat each piece on its own merits and demerits. In the broader scheme of things, sure we're concerned about the potential impact of all the changes, but that can't necessarily influence what we're going to say about this particular bill just dealing with the reassessment. We agree with you; everybody's concerned about what the potential outcome of all of this is going to be.
Mr Pouliot: With the creation of subclasses under the jurisdiction of municipalities, do you fear that the small business people will still pay the full levy for schools? Without imputing motive, would the council of the day decide to impact more on the residential or on the small business and industrial sector? There are more residential homeowners.
Mr Bech-Hansen: The more you subdivide property classes, the more opportunity you create to cross-subsidize between property classes. That's just a general drawback of introducing the idea of graduated tax rates or new subclasses for that purpose, and we're against that. In an ideal world, if you were starting from ground zero, we'd say there wouldn't be any property subclass. There'd just be something called property, and it gets an assessment and it gets taxed, plain and simple. The fewer classes, the better. We agree that the more you create these things, the more you give opportunities to municipal councils to screw around with who pays the freight for whom. We'd like to try to avoid that.
The Chair: Thank you very much for coming today and for your excellent presentation.
INDUSTRIAL SECTOR
The Chair: Will the industrial sector please come forward?
Ms Tayce Wakefield: We appreciate your time this morning. We'll do a brief presentation and then try to leave time for questions at the end. With me today are Peter McBride, of the Ontario Mining Association, and John Bakker, of the Canadian Steel Producers Association. We're sort of the business types. We have some tax experts along to help us out as well. I'll just introduce the members of the team, because if you have technical questions, we brought them along to help.
The Chair: Would you like to have them sit at the table as well?
Ms Wakefield: If you wouldn't mind. Come on up, guys.
Just about to sit down is Jack Walker. He's with the law firm of Walker, Fox. Next to him is Iain Fraser of AEC Valuations; they've been helpful to our group. Stephanie Serra is a Career Edge student working with us on this file. Just a brief commercial for Career Edge: If Stephanie is an example of the quality of people involved in that program, it's an excellent program.
We represent a broad group of industrial taxpayers. In addition to the people who were able to appear this morning, our team includes the assemblers at Ford and Chrysler as well as General Motors; the Automotive Parts Manufacturing Association; mining and steel are here; the oil producers; and I believe you've heard separately from the chemical producers and the brewing association, but they too have been working with us on these issues.
Let me begin. We support the Ontario government's efforts to reform the property tax and assessment system. We believe it demonstrates the government's commitment to establish a fair and equitable tax system, and we believe a fair and equitable tax system is fundamental to creating a climate where business is welcome in the province. However, we do have some concerns that we want to share with you today. For example, targeting industry by creating a separate class and continuing higher rates than for all other businesses is a contradiction to this commitment to fair and equitable tax systems.
Industrial players are both capital- and labour-intensive. Industry represents about 7% of the registered businesses in the province, but we employ about 20% of the workforce. On an interesting note, we generally consume less municipally provided services than either commercial or residential taxpayers because we tend very often to provide our own sewage systems, roads, policing, fire, that kind of stuff, from within our own operations.
We are very concerned that continuing higher taxes for industrial properties sends a signal that the Ontario government discourages industrial operations and investment. I'd just note that new capital investment is probably the most transient in the industrial sector and it will seek locations with the lowest cost across all the measures, property tax being one of them. In addition to our interest in attracting new investment, we need to be concerned that we do not disadvantage existing investment by making it uncompetitive.
Ontario is among the highest in property and wealth taxation as a percentage of GDP in the industrialized world. In fact, we have virtually no wealth taxes in Ontario, inheritance, gift, some minor capital taxes. We are a very heavy property tax jurisdiction, and this chart gives you an idea of just how property-tax-heavy we are. We believe this current overtaxation of Ontario business hinders our ability to compete nationally and globally. I know that when we do a bid for investment, one of the line items assessed is property tax, and it is measured as against competing jurisdictions.
The next chart shows you the kind of thing we measure. It is a comparison of industrial property tax per square foot, looking at competing jurisdictions for investment. It shows you that at the low end in Ontario, we are still above competing jurisdictions. At the high end, we're off the scale compared to other jurisdictions.
The new assessment system will go part of the way. It will eliminate the inequity and distortions within classes by establishing a current market value system. But we are concerned that the huge tax inequity and distortions between business classes should also be addressed, and it should be done by establishing one rate for all businesses.
Systematic overtaxation of one class of properties relative to another -- that is, industrial properties -- is built into the current tax system, we believe for historic anomaly reasons rather than any deliberate public policy reason. Business pays on average three times the residential rate, in some cities as much as five times. Industrial is significantly overtaxed relative to commercial. We don't see a logical reason for the difference between the two classes. In addition to that, there is significant variation in tax rates across the province, depending on which jurisdiction you're in. The net result is that two equivalently valued properties can be taxed at very different rates.
As I've already mentioned, industrial business frequently receives fewer benefits from municipal services, yet we're paying by far the most. The bottom line for us is that a business is a business, and there is no reason for special treatment to be given to one type of business over another.
The next chart is a bit of an eye chart, but what it shows you is that on average, industrial players pay 347% of what residential players do in any given municipality, compared to only 235% on commercial. We would say that in an ideal world, a property should be a property, but certainly a business should be a business. There should not be a differentiation between commercial and industrial. You can check the municipality that interests you most and see what the differentiation is, but in virtually every case we think it's an unfair differentiation. In case anybody wants to know, Southwold is where the St Thomas Ford assembly plant is located, which is why it's on the list.
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As I said, the first principle for us is that a business is a business. There should be no different class, no different rate, for commercial and industrial.
Second, we are concerned that under Bills 106 and 149, the minister will be able to establish classes and subclasses by regulation. That in effect gives the ability to create classes and subclasses which will either bonus or target certain taxpayers in a municipality. There are two fundamental problems with that. The first is that there is no process in the act to ensure that the concerns of those who would be materially impacted are taken into consideration by virtue of the fact that it's ministerial discretion. We are concerned about due process considerations for something that might so materially affect the competitiveness of one player versus another. Second, we're also concerned about the result of either a target situation, such as Heinz experienced in Leamington, or a potential bonus for a greenfield investment that might come into the province.
Let me say that we're not taking a position on bonusing today, which is properly the subject of the Ontario Municipal Act, but we are saying that 106 and 149 should not provide backdoor bonusing where it isn't intended under another Ontario act.
The bottom line for us is that municipalities and the minister should not be permitted to target or bonus individual industries or taxpayers. Sections 7 and 8 of the Fair Municipal Finance Act should be amended to prevent targeting and bonusing. The principle for us here is that property tax should not differentiate competitors within the province. Differentiation between competitors should be more properly on the quality and value of goods and services provided rather than on the fundamental property tax cost.
In terms of the transition, we have some views there. Some taxpayers have been overpaying in this province for many years while other have been underpaying. As I said at the outset, we support the efforts by the Ontario government to rectify this wrong. However, we are concerned that the eight-year phase-in period is too long, particularly for those who have been overpaying for years, and it also builds in unnecessary complexity. I don't know too many businesses whose active business planning time frame extends to eight years; three to five years is more normally a business plan. When you get out beyond the five years, you have some visioning and some directional planning, but you need some certainty as well, and that would drive us to a shorter time frame.
In terms of phase-in concepts, we are concerned that historic overpayers should not be expected to finance a political decision to relieve the impact of tax increases on others. We would ask that property tax decreases should be provided as quickly as possible, and if phase-ins are necessary, they should be restricted only to hardship cases. We would say a threshold of 10% in terms of increase, or some measure, not for everyone. The maximum phase-in period should be at worst, from our perspective, three to five years, ideally immediately.
To talk for a moment about the bands of fairness concept, again we don't see a reason for differentiating, having separate bands of fairness, allowable ranges, for commercial and industrial. We believe there should be a single band of fairness for commercial and industrial. We believe it should be as narrow and as low as possible. Those municipalities that fall outside the band of fairness when they are established should be required to move into the band within a reasonable time frame, and again a reasonable time frame to us is as soon as possible.
We believe all these elements should be clearly spelled out in the legislation. The Fair Municipal Finance Act should be amended to establish one narrow, low band of fairness for all municipalities.
To us, property taxes are property taxes, so we'd like to take this opportunity to talk for a moment about the Education Quality Improvement Act, Bill 160, because for us we look at a tax bill no matter which act is generating that bill.
The Education Quality Improvement Act establishes two property classes, business and residential. In that way, we do support at least the fact that in the legislation there isn't a differentiation between types of businesses. However, we are concerned that the regulations will allow the minister to establish separate classes of property, so we may migrate away from one business class to more; and in addition, different tax rates may be established for different municipalities, different geographic areas and different parts of municipalities.
We're concerned as well that the Minister of Finance is given regulatory discretion over how $3.5 billion in taxation is raised from the business community. We believe that is something that should be legislated, not left to ministerial discretion. We need certainty. We need to understand clearly what those principles will be.
We believe that all businesses share equally in an educated workforce and therefore should contribute equally, and that the education tax should be determined by a clear public policy direction set explicitly in legislation.
The bottom line on this issue is that there should be a single business education tax rate and class for all business across the province.
To wrap up and summarize, our recommendations are as follows:
There should be a single class and a single rate for all business properties.
There should be no discretion to create special classes to bonus or target individual taxpayers.
Decreases for overpayers should be provided as quickly as possible
There should be one narrow, low band of fairness established in legislation for all municipalities.
The business education tax should be established clearly in legislation and should be a single rate for all businesses across the province.
Thank you, and I now invite your questions.
The Chair: There are approximately 18 minutes left, which will leave six minutes per caucus. We'll begin with the NDP caucus this time.
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Mr Pouliot: A most impressive presentation. If Bill Gates ever attempts to appeal his residential assessment, with high respect, madam, I think he should bring you along. You probably would convince the panel that Mr Gates is not being properly assessed.
I'm intrigued by this same rate of taxation for, say, the much-maligned banks, for instance the Royal Bank, vis-à-vis the mom-and-pop bakery. Best wishes with your respective councils. Taxation, not only across Ontario but in modern democracies, has become extraordinarily complex, for there is the recognition -- although it's changing -- of the need to favour one sector as opposed to another. Subclasses: That's why you have experts in tax.
I just read in ROB a couple of weeks ago that Quebec has yet again offered an incentive. New businesses establishing themselves in Quebec are exempt from some provincial taxes, and they're leaning on municipalities. But it's not every sector. It depends. If you're high-tech, that's one thing. If you're mining, under the mining assessment act, whatever is underground, the real wealth, which is not renewable, is tax-exempt. It is perhaps, of the resource sector, the most advantaged, but they too will claim that they're overburdened. Once you get to forestry, there are at least 10 different tax systems controlling forestry, anything from a stumpage fee to growing a replacement, a fee for every unit you harvest, so it's terribly complex. I'm sure you're very much aware of it.
Your point is extremely well taken. We need to simplify where we can, yet we're going against the current.
Ms Wakefield: We agree that greater simplification is desirable. Clear, understandable rules which are written in legislation is a key principle for us. We compete internationally for investment in the industrial businesses that are part of our team, and while there are other things that are positives for investment in Ontario, this is very definitely a negative. It shows up, as a line item, as a negative, and it's something we think we should address. We're not saying we shouldn't pay our fair share; in fact, all the players involved in our team fully accept that we have a responsibility to pay our fair share. What we don't accept that we should pay a disproportionately high share.
Mr Pouliot: Lobbying is the most honourable of professions; it's not a vulgar trade. Ours is a vulgar trade. But low interest rates, proximity to markets -- Mr Kwinter and family have done very well, through a lot of hard work and good fortune -- stability of government, and reliable, consistent energy at a reasonable cost are all factors. I can look at the Missouris and the Alabamas of the world, the right-to-work states, and Quebec is not attracting nearly the investment that Ontario is attracting. Mind you, I'm aware there are other factors.
Your point is well taken, but every second brief we get says they're unique, so scrap that word out of the dictionary; no more "unique." Then we have fairness. Everybody says, "I'm not opposed to paying some taxes, but it's fairness."
Here is the list of what is about to happen; that's devolution. That is the real story. This is not revenue-neutral. This is close to $1 billion coming out of municipalities in the shift, so expect not to pay the same or less; expect to pay more taxes. There's a billion dollars missing; the document is right here.
Mr Jack Walker: I think you're missing the point. The point is that there's nothing wrong with distinguishing between industry, commerce, business, as long as it's a political decision. The historic background of this is that the distinction between business and industry was a haphazard happening that occurred in 1970. There was no policy; it just happened. When they froze the roll in 1970 it happened because of the economics, and it's been carried forward and is being brought out now as if it were intended and it was a governmental decision to carry it forward. That's not the truth.
Mr Kwinter: Thank you very much for your presentation. I'm really taken by the presenters who come forward and say, "We really welcome the effort to change the assessment system, but..." and then they list all the reasons they don't agree with what the government is doing. I'm sympathetic to that, but I have concerns.
First, on these line items, industry doesn't want to pay any more taxes than they have to. How much of a determinant is that in the overall evaluation? I mean, if you want to get cheap taxes, you'd go up to the Northwest Territories, but obviously that doesn't make any sense. You've got to be somewhere that gives you access to your markets, that gives you access to a workforce, access to infrastructure, all of these things. How critical is that tax number?
Ms Wakefield: As you know, it's the combination of factors. No one factor will completely drive a decision. But property taxes are a line item; it is something that gets focused on. There are the direct comparisons made between the jurisdictions that are being considered for any given investment, so in that sense it's relatively more important than other factors, but again it is a package.
The point here is that competitiveness would suggest that we're at a disadvantage here in Ontario. Even within the province, we have found ourselves, as Jack said, because of a historical accident because of the freeze in 1970, with a situation where the policy of the province is to disadvantage industrial investment, to consistently and systematically tax industrial investment at three to five times what residential pays or double what commercial does. Yet this is a sector that is very labour-intensive. We would think that the policy of the province should be at least to put industrial investment, which is labour-intensive, on an equal footing with commercial investment to ensure equity within the classes within the province, not to favour one particular type of business over another.
Mr Kwinter: I agree with you completely. The political reality, though, is that the one you want to tax the least is the homeowner, because they're the voters, and then you want to put the tax on industrial because they require very little in the way of service and it's perceived that they have the ability to pay, so they whack it to them. I agree that there is an inequity, but you have to deal with the political reality.
Ms Wakefield: I understand, but somewhere in there is the balance, which is that that homeowner has to have a job to be able to pay his taxes, and that's where that you've got to find that relative equity as between business and residential.
Mr Kwinter: I'd also like to talk to you a bit about the bonusing. My concern is that notwithstanding that in the province municipalities cannot give tax incentives to attract industry, with this particular act they're going to be able to do it a different way. You're going to have jurisdiction-jumping, you're going to have people competing with each other, depending on how they interpret the classifications they're assigning to a particular person. If someone comes in with a greenfield operation, they'll say: "We can work that out. We'll finagle the thing around. We want you to come to our community." Do you see that as a reality?
Ms Wakefield: You should come join us on this side of the table. That's exactly our concern. Most of the players here are mature industries. Some of are expanding or have hopes of expanding, but we have some concern that bonusing is more likely to be achieved by a greenfield investor in the province, and then you start to get into advantaging one player versus another within a sector. We go back to the fundamental principle that property taxation should not be the competitive base of one player or another. Second, backdoor bonusing shouldn't be allowed by this act, where it's not allowed by the Municipal Act.
Mr Kwinter: The last thing I want to talk to you about is the education tax. Again we're talking about politics. The government has made a decision: "We want to take education funding off the taxpayer, but that's the residential taxpayer, that taxpayer who has a vote. We're not going to take it off industry, because they don't have the same vote, and we've got to be able to get the revenue." So we have a problem, because there are inequities. There are arbitrary decisions made to disadvantage one sector over the other.
Ms Wakefield: I think most businesses in this province would say that one of the competitive advantages we have is an educated workforce and that business does share in the responsibility for educating that workforce, for paying some tax for education. But the two principles that guide us in this is that first of all it should be clear and understood and in legislation. It's $3.5 billion a year, big money, so it shouldn't be at the minister's discretion; it should be clearly written in legislation. Second, fair and equitable: There should be a single rate for all businesses. It's difficult to argue that one business benefits more from an educated workforce than another, so we would suggest, have a single rate for all businesses across the province.
Mr Grimmett: I want to congratulate you for a very provocative and effective presentation. You certainly have raised a lot of issues that all parties want to discuss. It's a shame that we don't have a little more time to discuss some of the issues you've raised. But I've got six minutes, so the first thing I want is to get your response to us dealing with the business occupancy tax. There's probably some relief in that for your group, is there not?
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Ms Wakefield: We do support the end of the business occupancy tax, because it was the worst excess, if you will, of different rates for different types of business. That is definitely a positive. Let me say again that we support the government in heading down this track. We think you're moving in the right direction. We just want to make sure that we get it as right as we possibly can, since property tax reform comes around once every 30 or 40 years in this province.
Mr Grimmett: Do see the lifting of the business occupancy tax as a substantive benefit to industry?
Ms Wakefield: We see it as a movement towards a more fair and equitable approach to property taxation that would be consistent with what we're suggesting here, which is the single class and single rate for all businesses.
Mr Grimmett: You have a slide here that shows the property taxes in Ontario as related to other major industrial countries. Why do you think that the services that are paid from the property tax are so costly in Ontario? I just want your views on that -- or do you not have an opinion on that?
Ms Wakefield: I'm not an expert in municipal services and the cost structures behind them and relative comparisons to other jurisdictions.
Mr Grimmett: Presumably though this chart does not disclose the fact that the property taxes in Ontario may fund services that are not funded by property taxes in the other comparative jurisdictions. That's a fair analysis?
Mr Walker: That's true.
Mr Grimmett: So the chart may not disclose everything you need to see whether our services are more costly or less costly than other jurisdictions?
Mr Iain Fraser: I know there are differences in education funding, for instance, between these jurisdictions. We don't have the means to actually go after that, but certainly.
Mr Grimmett: One of the major issues you have raised is bonusing. It is a very significant issue, and we have had some discussions with some municipal people about it already, but I did want you to address some of the ways that the legislation has tried to deal with that issue. We will be setting tax ratios to prevent shifts between classes. Municipalities can only move towards fairness within the bands of fairness that are being established and subclasses would be restricted by the bands of fairness for the property class, and there are also provisions in the act for the minister to impose by regulation restrictions if there appears to be bonusing.
Ms Wakefield: As I said, bands of fairness conceptually are the right direction. We would improve them by not just making them optional for municipalities to move in the right direction with moral suasion or direction from the government, but rather, make it obligatory and go the final step. In that sense, bands of fairness are a good concept. The way to improve the concept, in our view, is to make it narrow, a single band of fairness for all businesses, force outlyers into the band of fairness and do it as quickly as possible.
The Chair: Thank you very much for coming today. We appreciate your presentation very much.
ORLANDO CORP
The Chair: Would Phil King from Orlando Corp please come forward. You have 30 minutes to use as you wish. If there's time remaining after your presentation, I'll divide it equally among the three parties for questions. Could you please identify yourself for the record and then go ahead.
Mr Phil King: My name is Phil King. I'm the senior vice-president of Orlando Corp and also VP at large for the Mississauga Board of Trade. The Mississauga Board of Trade is as concerned as the development industry with this act with respect to the issue that I'm going to bring forward today.
The Chair: Are you here representing Orlando Corp or the board of trade or both?
Mr King: I'm here representing Orlando Corp and expressing the concerns of the board of trade, as directed by the executive, on this particular issue.
Orlando Corp is this province's largest industrial developer and builder. We cover the whole development spectrum from buying and developing land to building and owning industrial and commercial properties. As developers, we do not create the market; we react and provide the product that the market requires. In our instance, that market is industrial growth. We provide what expanding businesses require from a facility standpoint. We need to have a long-term supply of well-located land to provide industry with choice of location at affordable rates.
Orlando's approach has been to purchase land for long-term growth that will ensure we have well-located lands available. That's known as land banking. In 1987 we assembled 1,250 acres of farm land in Mississauga. This project, known as Heartland, was a 30-year project which will eventually be home to over 300 businesses and provide over 30,000 jobs. To date we have serviced and registered 700 acres of land through five different plans of subdivision. There are still over 200 acres of vacant land within those registered and serviced plans of subdivision, and over half of those lands are zoned office commercial, and as such, have a considerable buildout time, in some cases over 20 years. As an example, we recently built upon a vacant parcel of land on Airport Road, 30 years after the plan was registered. As you can appreciate, the cost of carrying these lands is a major factor in our consideration. We cannot afford to have too much vacant land in our inventory because of the time frames involved.
In the past, the practice for taxing development lands has been to assess taxes based on use. This bill is a major departure from that well-founded practice. I'm just going to put up a chart. This chart signifies how the current practices work for taxing farm lands pending development, and it deals with various approval processes through the planning process. Up until registration of a plan of subdivision today, the lands are farmed, nothing on the land changes as far as use is concerned, and lands are being taxed at the farm rate. You can see that indicated by the very small percentage of the total tax rate up until about year 8. The time frames we're talking about here are totally market-driven. In areas in the GTA, you can draft approve and have plans registered within a couple of years; outside of the GTA, it can be many, many years. So you can appreciate, I'm sure, that the cost of carrying those lands after draft approval is a significant issue.
After you get registration, you then service the lands, and that will allow you to obtain building permits. The final use is not determined until the building permit is actually given, so you're not going to get the building up there that will use the lands for their final use until that time, so current practice is even after registration, some lands are still being farmed in large blocks and still benefit from a reduced tax rate to encourage the development industry to bring these lands on stream and have a good supply of lands.
Bill 149 proposes to change that by starting a new trigger at draft plan approval, and at draft plan approval, this act recommends that the farm tax rate no longer be applied, regardless of whether the lands are being farmed, and it is then a percentage of the market value. The act at this stage recommends that up to 50% of market value is applied to draft plan approval and then at registration going to 75%. You can see the significant differences in this chart from the other one and the significant increases in costs that will be applied at draft approval. The one concern we have is, as I say, the market drives the time frame. What will happen is if we are not able to have a reasonable level of taxation, we will not bring lands on to be draft approved.
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This government and its predecessors have had one common approach with respect to development: They have all recognized that development is the engine that drives Ontario's economy, and they have relied on the private sector to make that investment. The policy that this government is putting forward under Bill 149 will undo all the positive policies put in place to encourage investment in the development industry in this province. The changes to the Planning Act, Development Charges Act and others will all be for naught, because the negative implications of this bill will prevent lands from coming on stream and in fact are a disincentive to bringing lands on stream.
This government has made changes to the Planning Act, as mentioned, to remove red tape and speed up the approval process. This bill puts forward a taxation policy that penalizes land owners for processing development applications. Again, you can see that if we get draft approval, there's going to be an increase in taxation.
At Orlando we have already been forced to change our development practice because of the severe implications of this bill. We were proceeding with a development process for 400 acres of industrial land in Heartland. We were just months away from draft approval, after 10 years of processing such plans. That 400 acres would be a 20-year supply when considered in conjunction with the 200 acres of serviced lands left in our serviced land portfolio. We have now stopped that process on 300 acres of that land because of this act. We are only proceeding with 100 acres, which is all we need in the short term. Why should that concern this government and the opposition parties? This province needs a long-term supply of lands ready for development to attract business and provide a long-term housing supply. If costs of carrying increase, then these lands will not be draft approved.
In our example of 300 acres, the land is currently being farmed, and notwithstanding any potential draft approval or zoning, those lands will continue to be farmed right up to registration. Even after servicing and registration, some large blocks that are still years away from development, ie, building on them, may still be farmed to assist in reducing the cost of carrying.
Any changes to any taxation system should not discriminate against industrial-commercial. Just as an example of that, I have handed out a chart which identifies how different classes of property have different tax rates, and these are land property tax rates. You've got a whole list of municipalities from which this information has been taken, and I think all we need to do is look at the median at the bottom. Farmland is at $27 an acre; the residential rate, even at 100%, is $198; commercial is over $3,000; and industrial is almost $2,000. If you apply industrial-commercial rates to vacant land, you are penalizing business being able to locate in this province and increasing the costs to business that will locate here. Our suggestion is, whatever you do, make vacant lands have the same tax rate, being the residential, to encourage these lands to be brought on stream.
We must remember just what draft approval of a plan of subdivision signifies. It is a step in the development process that provides conditions that a land owner must satisfy prior to being able to achieve registration of the subdivision. Nothing on the ground changes due to draft approval. Registration is the trigger when changes on the ground occur and the lands can be sold for their intended use, although the final use, as mentioned before, is that the land is not realized until the building permit.
We are at a loss for a reason as to why an increase in taxation is being proposed on vacant land and question the rationale. However, if changes are to be made, we have encouraged this government to use a different trigger to implement any changes in taxation: That trigger is registration of the plan of subdivision. Registration signifies that the land owner has complied with all conditions on the development imposed by the province and municipality. Registration permits the land owner to sell the land for its planned use. It is the point where the planning approval process is complete. It is the point where the land owner commits to spend significant dollars to service the lands, pay development charges and be able to market the lands for sale. Registration is the point where building permits are available, so registration is the correct and fair trigger point for any changes in taxation. As mentioned, even after registration, we're urging that this government apply a single tax rate to continue to encourage these lands to be brought on stream.
Some will argue that the value of lands increases at draft approval and should be based on value and therefore pay its fair share. Some will also argue that paying farm tax rates by developers is an abuse of the system.
Let's study the facts again: Draft approval is the vehicle to implement a municipality's official plan. It provides the land owner with a list of conditions that are required to be met before the lands can be used for their ultimate use. The use of the lands the day before and the day after draft approval does not change. The land owner cannot sell his land for its intended use, because the approval process has not been completed.
If this government wants to stop lands from being draft approved, then Bill 149 is the right policy; if this government wants to encourage draft approval and encourage investment, then it's the wrong policy. We're in the front line of development and industrial growth and need government as a partner, a partner to help orderly development based on sound principles, a partner to ensure the system is fair and not overly bureaucratic. We take the risks of investing considerable funds in the development process. We need government to make it easier for us to invest, not place restrictions on such investment. We will all be losers if this bill is passed as it is. We therefore encourage this government to revise the act and to encourage lands to be brought on stream. We suggest the following changes:
Continue to recognize that at draft approval, nothing on the land changes to warrant any increase in taxation. Those lands are still being farmed.
Implement a structured taxation vehicle at registration, and such structure would value the lands based on their current value, apply reducing factors to such value to achieve a fair tax rate, recognizing the lands are still vacant, and I've mentioned before that that tax rate should be the same for residential, commercial or industrial -- they're still vacant lands.
Permit the municipalities the option of lowering that factor, and this will benefit municipalities outside the GTA where there are considerable registered lots available with no prospect of development in the short term. As an example, the statistic that I had heard in Niagara is that there are over 100 years of registered industrial lands available at this time. Imagine if there were an increase in taxation. The land owners would definitely lose those lands for non-payment of taxes.
Finally, impose a full taxation at building permit. That's when the lands are being used for their intended use.
In summary, there is no justification for any tax increase prior to registration of a plan of subdivision and no justification for full taxation prior to building permit.
That's the end of my presentation on that issue. I'll be pleased to answer any questions.
The Chair: Thank you very much. We have approximately 16 minutes left for questions, which I'll divide equally among the parties.
Mr Gerry Phillips (Scarborough-Agincourt): Can you take a real-live case for us of some building of some sort and give us some indication of what Orlando might expect if the bill goes through as it is, in terms of what you would have to sell the building at or whatever?
Mr King: Let me just explain that if we had proceeded with the 300 acres that we decided we were going to stop on, the day after we got draft approval, our tax rates on those lands would have jumped considerably. We are currently paying around $39 an acre, and we're farming lands. They're bona fide farms. The farmers have been farming them for 20 years. The ownership has changed, but the lands are still being farmed.
If we had proceeded with draft approval last year, before we knew this was coming along, we would now be hit with a tax increase that could be up to $1,800 an acre on those lands, from $39, and those 300 acres could be sitting there for 20 years before we get registration. You can imagine the cost, $1,800 a year on 300 acres for 20 years, when the market value of industrial land today is between $220 and $275 an acre and it costs $175,000 an acre to pay development charges, to put the roads in. That only leaves $50,000 to $75,000 an acre for the actual land value, and that's going to be totally used up in taxation. So, as I say, it prevents you from bringing the lands on stream. We've heard some developers talking about de-draft-approving their lands because of the onerous provisions of this act. That doesn't make sense to anybody, why you would want de-draft-approve something purely because of a taxation policy. It's not encouraging development.
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All of these things, even if companies like ourselves or the larger ones will still be able to afford to pay these things, all it's going to do is increase the cost to business. The rental rates will go up. Currently taxes on industrial buildings in Mississauga are about $1.10 a square foot of a total occupancy cost of around $5 or $6 a square foot. So it's a significant number, and that number can only go up because of this policy.
Mr Phillips: Another committee presentation, I think from the petroleum industry, was indicating that there are significant barriers to capital investment. In many industries, if we're going to have the jobs, we've got to build the factories, obviously. We're competing, as we all know, at least North America-wide now for capital investment. So I take your point, which is that the land cost is currently significant and this would become a dramatically more significant cost factor in the construction of new industrial and commercial sites. On the surface, it sounds quite dramatic. At $1,800 an acre for even 10 years at current values, you're talking $250,000 probably.
Mr King: It's significant. When you start getting into numbers, people start to get --
Mr Phillips: It's not $250,000, but $30,00 or $40,000.
The reason we were given for doing this is "to encourage development-ready land at reasonable cost while ensuring such lands make appropriate municipal contributions while held for development." So the government's position on why they're doing this is to have it at reasonable cost but making sure it contributes its fair share, if you will, to municipalities. Have you any advice for us on that?
Mr King: Yes. What is the fair share for a piece of farm land? Why does a piece of paper saying you've got draft approval signify that you should be paying more the day after you've got it than the day before you've got it? There are absolutely no services provided by the municipality for those lands up until registration. Even after registration, there's a period of time before they start providing services to those lands. That's basically till you get building permits. So what we see this for is a way to get additional revenue from -- I heard some discussions on the last presentation -- those who are not able to vote, they're owners of land, they're farm owners. We're not talking about development companies like ourselves. A farmer who has owned his land for 20 years and decides he wants to get draft approval: Those are the people who are going to be paying the increase in taxation, and those are the people who are going to be risking losing their lands.
Mr Grimmett: Mr King, as with some other presenters, you've certainly raised some very important issues in the development process. You've identified some issues as far as the cost you're encountering. But I do want to say that I think we're missing one of the issues here. I go back to when I meet with people in my constituency office and they come and see me and they say -- and I get this all the time -- "Mr Grimmett, I just added a room to my house, I just made my house nicer and better, and the assessor came around, and they're going to charge me more now in taxes, when I have improved my property. My neighbour across the road, his building is falling apart, it looks awful, and he pays less taxes than I do. He's not making a good contribution to the community." I have some sympathy for his point of view, but I have to tell him that we have a value-based assessment system. We have chosen that system because it is seen to be the most fair way to divide up the cost of the services we provide.
It seems to me there is a point that's being missed here: that when you get to draft plan approval, when you get to registration, when you get to building permit, you are adding value to the land. From my limited experience as a lawyer acting for developers or acting in this process, I know that when you reach those benchmarks you have crossed a certain hurdle and you have added value to those lands. I think it's important that this be recognized, because it's no longer just a piece of farm land; it's now a piece of farm land that has more market value.
Mr King: I don't dispute anything you've said. I agree with you that at the various points throughout the process there are increases in value. The point is, is then just taking the value and applying taxation to it based on that value the right thing for this province to do? Is it the prudent thing for this province to do? We're saying no, it isn't, because you're going to prevent those lands from coming on stream. We will not be able to afford to bring them on stream 10 years earlier; we'll wait until the year before. Who does that benefit? The revenue is not going to be there, because we're going to change what we have to do because of this policy.
I don't argue with the principles you've got there, but I thought this government was trying to encourage investment. This is not the way to do it. If you're going to encourage it, don't put roadblocks in front of allowing us to put that money in. The real value is not generated till registration. That's when we put in considerable dollars. As I mentioned earlier, it's $175,000 an acre to develop an industrial subdivision in Mississauga today with market values of $225,000 to $250,000, depending on where it is. That's significant.
Mr Grimmett: How do you deal with the taxpayers who say: "Look at Mr King's property in this municipality. It's farm land, and he's paying $22" -- what is this thing, is this per acre?
Mr King: Per acre, yes.
Mr Grimmett: -- "and I'm an industrial operator who is having a bad year, and I'm paying $6,000"? That's a difficult issue for a municipal councillor to deal with. It's a difficult issue for me as an MPP to deal with. It's a political issue. How do we deal with it?
Mr King: I recognize it's a political issue. We're suggesting that you try to encourage investment, don't throw roadblocks in front of investment. When you've got a building on the lands, then it's based on value. We have no problem with that. We've been working that way in Peel region for years; we've had current market value for many years. So that's not the issue. When the land is being used for its intended use and there's a building up there, then tax us the same as everybody else. But before we get to that point and before we spend hundreds of thousands of dollars an acre to bring it to that point, don't then penalize us for getting it there.
If you're going to hit us, hit us when we can afford to pay it, when we are going to get some money back. We cannot sell the lands for industrial use until after registration. There may be a value on paper -- and we've had this discussion with assessors -- but there are very few land sales at draft approval; the sales are when you register and you can say, "Okay, I want to buy an industrial lot now," not further down. You've got farmer-to-farmer sales as farm land, and then you've got them as registered blocks on a plan of subdivision. The stuff in the middle is very little. I'm not arguing there's not an increase in values. There's an increase in values all the way through the process. But I'm just saying that we don't think this is the right way to tax it, because you're then preventing us from bringing it on stream, and that will be detrimental to everybody, including the municipalities.
I understand there has been a lot of support from municipalities in this regard. I think Stephen Kaiser of UDI spoke yesterday and read a whole bunch of letters from various municipalities saying, "We don't want to see this either, because it prevents us from bringing these lands on stream and prevents orderly development."
Mr Grimmett: Mississauga thinks it's a good idea.
Mr King: Well, Mississauga is Mississauga. What can I say? That's one municipality in a very large province.
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Mr Pouliot: Good morning, Mr King. I completely agree with your approach. I'm most sympathetic. I share in your sorrow, if you will. It's appalling and shocking, because I know this government to be a good friend of developers. I know this government to be a very good friend of land owners, preferably large land owners. I find it, to say the least, Chair, inconsistent that your party is deliberately and systematically, by way of Bill 149, hurting its friends.
I come from a milieu where friends are people you treat a little better, not a little worse, unless -- and you've mentioned Mississauga -- you have a parliamentary committee in unity. Maybe the government made a deal with the mayor of Mississauga. I don't know, maybe it's appeasement, because some people make a lot of noise, and they get a lot of money from assessment on vacant land. They make a living at it. They're assessment rich.
What you're saying, simply put, is, "Give us a chance." You have no objection, once you get your building permit, to being responsible for a levy of taxation in accordance -- whether you're residential, whether it's commercial or industrial, but at that stage. Until that stage, the land is not productive in the context of development, so why should you be penalized because you've tipped your hand, you've shown your intent? They're taxing the hypothetical, that's what you're saying.
Mr King: That's right.
Mr Pouliot: They're taxing a non-entity. So what do you do? When in doubt, you say no and you don't create jobs and you don't develop. You know of real cases that would develop, but the deterrent is that they will have to fork over forever some tax dollars, and they're deterred from developing because of what the government does. Is that what you're saying, Mr King?
Mr King: I agree with some of what you said. I don't think this is an issue dealing with how you treat your friends; I think this is an issue of how this government is trying to encourage investment in this province. We're pointing out that this bill is detrimental to that position this government has publicly stated. Whatever reasons they've been there, they may have been founded on good reasons with respect to the value you are talking about and keeping that same principle throughout, but the end result is that (1) you won't get the revenue, because as land owners we will have to change the way we do business; and (2) is it the right thing to do when you're trying to encourage investment? What do you want? Do you want investment and jobs, or do you want to get extra municipal taxes out of the land owners, which will cause smaller land owners to lose their land? It's happening now, and it will continue to happen if this policy is put in place.
Mr Pouliot: We both want Ontario to be open for business, Mr King, and we certainly hope the government will listen.
Mr King: So do we.
The Chair: Thank you very much for coming today and for an excellent and interesting presentation.
CANADIAN OPERA COMPANY
The Chair: Would the representatives from the Canadian Opera Company please come forward. You have half an hour to use as you wish. If there's time left over after the initial presentation, I'll divide it equally among the three parties for questions. Would you please identify yourselves for the record and then please go ahead.
Ms Georgia Prassus: Good morning, ladies and gentlemen. My name is Georgia Prassus, and I am the president of the board of directors of the Canadian Opera Company. With me are Michael Gough, the board secretary; Ms Elaine Calder, the general manager of the company; and Michael Bowman, one of our legal advisers. I thank you very much for seeing us today.
Many of you will be familiar with the Canadian Opera Company and our exciting and critically acclaimed productions. We have just finished our two fall productions, Turandot, and Oedipus Rex and the Symphony of Psalms. These went exceedingly well. Turandot, I'm pleased to say, sold out just a few days after we opened, and Oedipus Rex and Symphony of Psalms has been invited to perform at the Edinburgh Festival next summer, so this all bodes well for the company.
The COC is a not-for-profit charitable organization with a mandate to advance the art of opera in Canada. We do this in the following ways:
Currently we have a six-opera mainstage season.
We have a very important training program for young artists called the COC Ensemble Studio, and through this program we have produced and trained some of the world international opera stars today. The most notable one, perhaps, is Ben Heppner.
We also have a broad menu of outreach and education programs aimed at youth and adults. This spring our company will be presenting Hansel and Gretel and The Magic Flute to over 20,000 Canadian students.
Finally, but very important, is the fact that we commission and develop new Canadian operas.
I've been on the opera company board for 11 years, and long before I joined the board, it has been a dream of the opera company to have its own opera house. The primary reason for this has been that we need a house with superb acoustics, which we do not have the pleasure of enjoying today.
But in addition to that, we need to have a facility of our own because we need to have growth potential. I think you will all appreciate that any organization that has no opportunity for growth potential cannot be healthy for too long. Where we are performing today, at the Hummingbird Centre, we are constrained by the fact that the ballet also performs there, and also Metro Presents has all their activities and shows there, so there isn't really time for us to expand our season. By having a new house, we can achieve more than one reality of superb acoustics; we can also expand our season in time.
It was tremendously exciting for me to be with the Premier this last July and make the announcement of our new site at University and Queen, the fact that we had an agreement of purchase and sale with the Ontario Realty Corp to acquire 145 Queen Street West. We intend to build an opera house with approximately 2,100 seats, and this will be a permanent performance home for the Canadian Opera Company. This is a spectacular location that's just been heralded by everyone. People are thrilled beyond belief. The site will provide one of the most exciting venues for the performing arts in Canada.
Many of you will have heard of the economic impact of the new opera house. It will have a total impact of $85 million on the Ontario economy, creating 951 full-time person-years of employment. The substantial contribution to creating jobs and economic prosperity for Ontario will only occur if this opera house is built.
We're here today to talk to you about the Canadian Opera House Corp, which we have established as a non-share capital not-for-profit corporation. This will own and operate the new house. We are in the process of applying for charitable registration for this corporation. The not-for-profit nature of the COC and our new house corporation is the reason we are here today. We would like to address the provisions in Bill 149 relating to property taxes on theatres.
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We would like it to be known that we support the move to exempt all theatres with less than 1,000 seats from property taxes on the basis that they provide the training ground for artists who are subsequently hired by large-scale commercial theatre producers. We commend this initiative, but we want to draw your attention to the fact that in opera the situation is reversed. In opera, it is the large companies, like the Canadian Opera Company, that provide training for young and developing artists. As I mentioned earlier, our Ensemble Studio postgraduate training program is recognized as one of Canada's finest training grounds for opera singers and coaches.
I'd like to tell you a bit more about the operations of the COC and the house corporation to serve as background for our request for property tax exemption.
Our objective in building an opera house is to create a performance hall for a not-for-profit charitable organization, namely the Canadian Opera Company. Initially, it is our intention to perform in the house for 24 weeks a year, but as I said earlier, we certainly hope to expand on that. It will be necessary to rent to a variety of other not-for-profit performing arts organizations, and some of these will be the ballet, the symphony, hopefully; we haven't finalized who the not-for-profit organizations will be at this point in time, but it is our intention to include them. This is the feature which distinguishes the new opera house from facilities which are constructed or operated with the intention of generating profits for their owners or shareholders, the fact that we're building a house and it's not intended to be a commercial for-profit entity.
The new opera house must be self-financing and cannot become a financial drain on the COC or other performing arts organizations that use it. In other words, if we were to charge astronomical rents to the other not-for-profit companies, we wouldn't be achieving the purpose we wish to. In order to be financially viable, the house has to be rented to other tenants when it is not occupied by the COC, and as I mentioned, we'll be offering tenancy to other not-for-profit organizations, the symphony, the ballet, chamber and choral music. But the house will also be rented to for-profit tenants such as commercial producers of concerts and theatrical productions. But I'd like to point out that in that case, we would not be sharing in the profits of those commercial producers; we'd merely be collecting rents from them as tenants.
The opera house is a different entity from other facilities of its size. First, it is not being built and operated for the presentation of commercial theatre. Second, as the performance home of a producing company, it has a distinctly different mandate from theatres such as the Hummingbird Centre and Elgin Theatre, which do not create productions; they're host venues. Third, the ownership structure is different. We will be a non-share capital not-for-profit corporation, unlike the others.
Bill 149 does not address the need for tax-exempt status for an opera house. The proposed amendment to Section 11 of Bill 149 was intended to deal with large commercial theatres. The amendment proposes a formula for property taxes to be paid by these large commercial theatres and allows them to have their property taxes reduced through a bylaw that the city of Toronto may introduce and pass.
But we want to point out that the definition of "large commercial theatre" does not extend to cover a not-for-profit theatre like the opera house. Therefore, property tax treatment of the opera house is still not covered under this bill.
Property tax exemption for the opera house is critical to the sound management and financial health of the COC and the opera house. We are therefore requesting that the Fair Municipal Finance Act (No. 2), Bill 149, be amended by adding paragraph 27 to Section 3 of the Assessment Act to provide the following exemption from taxation:
"Theatres owned and operated by a non-share capital not-for-profit corporation intended primarily for the staging of not-for-profit productions of a type prescribed in the regulations."
I'd like to thank you for your consideration of our request, and I'd like to stress how important it is for the COC to have property tax exemption included in Bill 149. We can then proceed with greater confidence to finalize our budgets and our business plans for both the company and the opera house. Even for those people who are not opera lovers, this opera house will be great for the city of Toronto and great for the province of Ontario.
Thank you for your attention, and my colleagues and I would be happy to answer any questions you might have.
The Chair: Thank you very much. We have approximately 20 minutes left, and we'll begin with the PC caucus.
Mr Grimmett: Thank you very much, and welcome. I'm going to ask you a question that I think I'd receive from people in my riding if such an exemption were granted. Toronto is known as a hockey town, a place where you could probably say the most popular form of entertainment is hockey. I think Maple Leaf Gardens pays property tax. What do you say to those people who are industrial, commercial and residential taxpayers who ask, "Why should my taxes subsidize the operation of a tax-exempt opera house?"
Ms Prassas: I think initially you have to explain that not-for-profit performing arts organizations are that out of necessity. The cost of producing opera, for example, which is what we're talking about today, far exceeds anything that we could be compensated for through ticket sales. Elaine will give more accurate figures, but I would guess that if we were to pay for the company, we would have to charge three times or more what we charge per ticket now to cover the cost of productions. We need to be privatized through private and public support, so there's just no way we could be a traditional for-profit organization. Is there anything you'd like to add, Elaine?
Ms Elaine Calder: Only that the nature of our business is that we operate as a not-for-profit. That doesn't mean that we try to lose money, but we very seldom make money, and any money we do make goes not back to shareholders, but back into the company to further develop and strengthen what we can offer the citizens of this province. We are by nature a different kind of corporation than the one you referred to.
Mr Grimmett: I guess what I'm getting at is, what is the benefit to all those citizens and industrial and commercial taxpayers of subsidizing the operation of such a facility?
Ms Calder: The same benefit that accrues when you have a strong and vital performing arts and visual arts community within your city. We are terrific engines of cultural tourism. There are enormous numbers of people who come to Ontario to see what our cultural sector does and who spend money here. Indirectly, we put far more money back into the economy than we receive through the kind of subsidy we're talking about this morning. We are good for restaurants, we are good for hotels, we are good for parking lot operators, we are good for tour bus operators, we're good for souvenir shops. We're good for all kinds of businesses that benefit indirectly by the very small subsidy we're talking about here.
Mr Grimmett: We've received information from theatre groups, small and large -- in some ways it's statistical, in other ways journalistic -- that there is a definite market throughout North America for the theatre in Toronto. Do you have similar information with regard to opera?
Ms Calder: One of the reasons we want to build the opera house is that we need to be able to put on more than one or two operas at the same time. What induces opera-goers to travel to New York and Chicago and San Francisco to see opera is that they can go for a weekend and see two or three operas. We need a facility where we can do a really quick changeover and do a different opera on Saturday afternoon than we do on Saturday night. We are already getting tourists from outside Toronto for the Canadian Opera Company. That figure will increase greatly if we can increase our repertoire on a given weekend.
Opera audiences are fanatics; they travel constantly. A large percentage of our audience will be in Chicago in a couple of weeks' time to see Ben Heppner, to whom Georgia referred, singing at the Chicago Lyric Opera. It's a very dynamic part of the cultural tourism industry.
Mr Grimmett: So currently your market is principally domestic?
Ms Calder: Yes.
Mr Grimmett: And you see this as an opportunity to expand it?
Ms Calder: Very much so.
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Mr Pouliot: How refreshing indeed. A mere 24 hours ago we had people reminding us that Toronto is now the third theatre capital and that film-wise we're becoming an important player as well. Then they went on to tell us about our ability to enjoy the diversity, the changes in demographics we've all noticed. Simply put, there's only one thing missing: yourselves. You believe in striking early. You don't even have a shovel in the ground and you're concerned about the intricacies of Bill 149.
I have one reservation, but it is not too consequential or burdensome, so before I address it, please, you need not fear the comparisons, whether they apply etc. A few years back -- we were with the opposition -- I was asked to do SkyDome. If half of it were true -- and all of it is -- you should be so lucky. You would have died and gone to heaven. It was better than the proponents anticipated when they arrived, and it was for nothing in return. It was more consequential, to the tune of half a billion dollars, taxpayers' money, guaranteed in perpetuity. This is not always a nice story, but I'm being candid.
I'm going to depart from form and commend the government. With the appointment of a friend, a colleague, but in this context a friend of yours, Isabel Bassett as Minister of Culture, they've departed from form, because they don't usually appoint the right ministers to the right ministry, but in this case it's flawless. She was instrumental -- there were other people, but she was the lead -- in terms of recognizing, through 149 and other bills, the necessity of those less fortunate. You're non-profit; why shouldn't you be given the same treatment? The Leafs have been losing for years and they make money. The COC has been winning for years, and all of us through them, and they're asking for a chance to be like the others.
There's just one small problem I have. You intend to have the building 24 weeks of the year, then you lease to some non-profits, but at times you rent to people who will make a profit. Someone is across the street and says that since you don't pay any taxes -- you know what I'm getting at -- "My capacity to compete is damaged." You can rent cheaper if you don't pay any taxes than someone who factors in the municipality taxes. But I wouldn't worry too much about it. They can express that with a subclause or by regulation. They're very good at that.
Mr Michael Gough: You'll be pleased to know, sir, that it is a term of our agreement of purchase and sale with the Ontario Realty Corp that in that instance our prices are to be comparable and no lower than commercial theatres so that we are not given a competitive advantage. Your point was anticipated, sir, and well taken.
Mr Phillips: First, I congratulate you on your site. I see the building's being torn down now. It's a fabulous site. And I agree with you; I've got lots of friends who travel around North America for opera, and they're all looking forward to the new building.
By way of background, the government has dramatically cut its support for the cultural community. We heard yesterday from a group of theatres that had seen their support cut by $2.5 million. To try and make it up, the government is saying, "We're going to forgive many property taxes." Well, it is the municipalities that pay for that, and the municipalities are being asked to pick up social housing, social assistance, child care, all sorts of new costs. Forgive me for being mildly cynical. The government slashes the support for the cultural community and then orders municipalities to cut property taxes, because it costs the provincial government zero and it costs the hard-pressed property taxpayers the money that was provided in property taxes.
You're caught in the middle. You are trying to do what is right for the opera community and for opera and the cultural community. But this is the reality we face here. The government is getting lots of pats on the back for doing it. It is costing the province nothing; it's all going to be added on to the local property taxpayers. In the process, we're now finding some gross inequities it looks like they're propping up. I think the group that comes next on our agenda here is caught in the middle of this as well. Your organization is caught in the middle, because you are competing for the dollar of the cultural community, and if other cultural centres are paying no taxes and you are paying taxes, it puts you at a disadvantage. You have a good case in logic. In introducing the bill, the government said it wants to help theatres compete on an international scale etc, that Toronto's live commercial theatre is third-largest in the world. I'm thinking maybe it's the third-largest in the English-speaking world, but it's third-largest somewhere.
I guess that's a long-winded way of saying that I have a lot of sympathy for and interest in helping the opera. It is within the context, though, that the cost of this will be borne by the city of Toronto, not by the provincial government. We all know there is only one taxpayer, but in the case of the provincial government, when it cuts support for the cultural community, that is cutting revenue generated province-wide and putting it on to property taxpayers in Metro Toronto, who will be, by the way, particularly hard hit by the dumping of social services on to property tax.
I think you've got a good case, primarily because the government has already set the precedent and has said, "We're going to do it in these cases," and I think you fit that same case. I think this is part of a pattern: Cut provincial support for the cultural community and order the municipalities to provide similar support in reduced property taxes. If you don't get in on that, you'll be at a disadvantage. You can't expect anything from the province and you'll be, by way of timing -- if you'd been built now, sitting there, I think you would have been included as part of the legislation.
I hope the government listens carefully to your arguments. As I said, if the building were already constructed, you would be included in the legislation. I think you're an oversight, frankly, that the government can address.
I understand the issue. I don't really have a question. I just have my observation of what we think is happening here. I know you've fought for 15 years, if not 50, for the dream that is now -- as I said, I drive by there now and see the building coming down. That's not exactly the shovel. The wrecking ball is on the site, and then the shovel will be in the ground shortly.
I hope there's a way the government can find to accommodate your concerns. Have you any idea what property taxes you would pay if there isn't some relief given?
Mr Gough: There are payments in lieu made by the Ontario Realty Corp. That site is currently a parking lot. Until we commence construction, that portion of the site occupied by the building will become a parking lot as well. I have in mind, from Gord Lassenger, with whom we negotiated, who is the vice-president of the Ontario Realty Corp, that the payments in lieu were somewhere between $350,000 and $400,000, but I want to caution that that's recollection and it may be -- but it's in that order of magnitude.
The Chair: Thank you very much for coming today and for an interesting and important presentation.
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COALITION OF PUBLIC THEATRES
The Chair: Could representatives of the Coalition of Public Theatres please come forward. You have half an hour to use as you wish. If you would like to leave time for questions, I'll divide that time between the three parties equally. Would you please identify yourselves for the record and then go right ahead.
Mr Charles Cutts: I'm Charles Cutts, and I'm president of the Corporation of Roy Thomson and Massey Hall.
Mr Roy Reeves: I'm Roy Reeves; I'm the chief financial officer for the Hummingbird Centre.
Mr Glenn Garwood: I'm Glenn Garwood; I'm the executive manager of the North York Performing Arts Centre Corp.
Mr Cutts: I'll proceed with the presentation, and we should have time for questions afterwards.
All of our theatres have legislated public mandates requiring us to promote and advance artistic, musical and cultural productions for the benefit of the public, and to respond to community interests. We all provide access to the theatres for a wide range of producers, without discrimination.
Upon first reading Bill 149 (No. 2), our coalition had concerns that we would be subject to payments in lieu of property tax based on subsection 27.1(1). This was a dramatic change in how we conducted our business, given that we, as public theatres, have been exempt from property taxes. We raised our concerns with Ministry of Finance officials and appreciate that at second reading, the minister proposed an amendment on September 25 in recognition of the importance of not-for-profit operations such as the opera, ballet and symphony. We acknowledge and appreciate the government's efforts.
Today we bring forward three main messages and a change to the proposed amendment to the theatres section of Bill 149 (No. 2). Our messages are: first, the need for financial self-sufficiency of our coalition members; second, concern that this legislation could be perceived as undermining federal charitable tax status which is central to the viability of the Hummingbird Centre and Massey Hall/Roy Thomson Hall; and third, the importance of theatrical and musical productions in Toronto to the economy and tourism industry.
First the importance of self-sufficiency to the members of the Coalition of Public Theatres: Presently, each of the coalition members does not receive any subsidies or grants from the federal, provincial or municipal governments. Our theatres are the only large public theatres in Canada that do not receive subsidies from governments. We have developed unique models of self-sufficiency that work very well. We are proud of these accomplishments as public organizations and are confident that the taxpayers are pleased with our financial independence.
Both the Hummingbird and Massey Hall/Roy Thomson Hall have taken serious steps in developing corporate business plans in the last few years to increase financial accountability and to respond to difficult financial pressures. For example, the Hummingbird Centre 10-year corporate business plan was approved by the city of Toronto to allow the theatre to seek private sector partners for capital investment rather than request government financial support. The North York Performing Arts Centre Corp was created specifically with the intent to be financially self-sufficient and not rely on municipal subsidies. In fact, the North York Performing Arts Centre Corp's Ford Centre has been highlighted by the Toronto transition team as a model of financial accountability to be extended to other public facilities.
Each member has developed financial accountability systems that allow for cross-subsidization of not-for-profit activities, investment in capital improvements and upgrades and financial independence from governments. For example, surpluses generated from commercial productions at the Hummingbird cross-subsidize the resident companies, the National Ballet of Canada and the Canadian Opera Company, both of which are recipients of government funding in recognition of the importance to the culture in Canada. The Hummingbird Centre supports other not-for-profit presentations that fulfil our cultural mandate.
The Apotex theatre at the Ford Centre cross-subidizes the access to and of operations of the George Weston Recital Hall, the Studio Theatre and the Art Gallery of North York, which collects Canadian contemporary art and has free admission. Surpluses generated also support the resident companies, the Amadeus Choir and the North York Symphony Orchestra. Commercial productions at Massey Hall support Roy Thomson Hall and its resident companies, namely the Toronto Symphony Orchestra and the Toronto Mendelssohn Choir. In addition, all coalition members have established capital reserve funds to support capital improvements and investments so as not to be an ongoing financial pressure on government.
The proposed preponderant purpose test, as described in Bill 149, undermines our self-sufficiency. It is a fundamental shift in how we have conducted our business. The new city of Toronto will have at its discretion the ability to create a bylaw to give a theatre a subsidy that represents all or a portion of the amount of the theatre's revenue used to financially support not-for-profit activities that take place on the same property. Take note please that Massey Hall and Roy Thomson Hall would not be eligible for consideration, given that the proposed amendment requires that the cross-subsidization take place on the same parcel of land. We recommend that it take place within the same corporate entity.
We understand the government's interest in ensuring that our public theatres fulfil our mandates and support not-for-profit activity. We have recommended a change to the proposed amendment that will allow the government to meet its objectives and allow us to maintain our financial independence and self-sufficiency. Essentially, our recommended change will require that public theatres demonstrate cross-subsidization. Then the municipality will allow a deduction from any payments in lieu of an amount equivalent to the cross-subsidization.
We propose that the present definition of "subsidy" under subsection 27.1(2) be replaced with the following: "Any amount under subsection (2.1) that the owner is permitted to deduct from the payment."
We suggest that subsection 27.1(2.1) be replaced with: "An owner shall be permitted to deduct from a payment under subsection (2) an amount that represents that portion of the theatre's gross revenues from performances of productions described in clause (b) of the definition of `large commercial theatre' in subsection (1) that is used to fund or financially support other performances or not-for-profit activities that are undertaken by the corporate entity owning the theatre."
Our federal charitable tax status: Secondly, we are concerned about the implications of the proposed amendment for the continuation of the federal charitable tax status for Hummingbird Centre and for Massey Hall and Roy Thomson Hall. The ability to fund-raise, conduct ancillary activities such as parking, and refreshment sales and stage commercial productions to generate revenue to cross-subsidize our not-for-profit activities is fundamental to our livelihood. Without it, our ability to fulfil our mandates is seriously jeopardized. This is why we are concerned.
The proposed amendment subjects our members to a preponderant purpose test where our activities may be deemed as for-profit if we stage commercial productions for more than 183 days a year. There is no question that we fulfil the same charitable objectives that originally earned us this status. The preponderant purpose test ignores the reality that our activities are dedicated to a charitable purpose. If we stage commercial productions for 184 days, are we any less of a charity? Not now, according to Revenue Canada, the body with the authority to make that judgement. Is a theatre in Kingston, London or Thunder Bay any less of a charity because of that? Not now.
You will understand that adoption of this principle could have repercussions more broadly than property taxes. Of course, we do not know this to be the case, but we do know that this approach to our activities is wholly inconsistent with the interpretation of the meaning of "charitable status" for taxation purposes and has the potential to have devastating consequences.
Loss of charitable tax status or taxing of partial or ancillary activities will have a significant negative impact on the day-to-day operations of the theatres in promoting and fulfilling our public mandates. The charitable tax status allows the theatres to generate ancillary revenues exempt from income taxes to cross-subsidize activities that directly support the public mandate of the theatres. Revenue-generating activities within a charity or not-for-profit organization are not subject to income tax, in recognition that they play an integral role in supporting the viability of the whole organization.
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Economic benefits: In closing, we want to tell you how we all benefit from this diverse theatre community. As you know, Toronto is the third-largest English-language centre in the world after New York and London, boasting a theatre sector with annual revenues exceeding $130 million. We also rank third internationally for the most live music venues.
More than 180 Toronto companies stage a mix of Canadian and international productions, averaging 75 different shows a month and 10,000 live performances a year. There are over 70 theatre venues in Toronto, from converted firehalls and factories, to restored vaudeville houses, to modern performing art complexes. The total capacity is over 43,000 seats. Our coalition alone provides almost 12,000 seats, over one quarter of the Toronto capacity.
In other words, our vibrant theatre and music community makes Toronto an international artistic and cultural destination. Approximately 50% of our audiences, or 3.5 million people, are tourists from outside the greater Toronto area. Approximately one in four tourists attends a live theatre production when in town. We all know tourists bring foreign currency to Ontario, spend money on hotels, restaurants and stores and contribute $4.76 billion to Toronto's economy annually.
Another major contribution our theatres provide is jobs. Our three complexes provide a total of 1,200 permanent and part-time direct jobs.
Our members play an important role in promoting diversity in the sector. In many ways, the Hummingbird Centre, Massey Hall and Roy Thomson Hall and the Ford Centre are anchors for the many exciting small theatres in Toronto. Synergies have developed between large and small theatres, and profit and not-for profit. Commercial theatres depend on the public theatres as a training ground for skilled technicians, performers and producers, and small not-for-profit producers rely on theatres with fewer than 1,000 seats to stage their unique productions.
For all these reasons, we support the proposed property tax amendments for both the commercial and small theatres in Toronto. However, the arbitrary decision to impose payments in lieu of property taxes on some theatres disturbs this balance. Therefore, adverse impacts to a significant component of the theatre community will have implications for the rest of the industry.
We would like to conclude by saying that we trust that the committee members will seriously consider our proposed change to the amendment that allows the government to meet its objective and allows our members to maintain self-sufficiency and financial independence from government. As you discuss further the implications of Bill 149, we trust that you will take into account our concerns about the viability of the Toronto theatre community and the potential implications for loss of charitable tax status to two of our coalition members.
Thank you for listening to our concerns. We are pleased to respond to questions you may have.
The Chair: We have approximately 16 minutes left, and we will go to the NDP caucus first.
Mr Pouliot: Your situation is difficult, for you have a lot at stake. It's also challenging to come up with accurate figures, for we simply don't know. It's not a two-and-two-make-four world. The province is the recipient of an entertainment tax, a sales tax -- taxes and taxes. It's revenues for the province and the federal government as well and the municipality of Toronto.
You cite examples of non-profit, examples of fewer than 1,000 seats as a definition. Those, by provincial decree, will be exempt from municipal taxation.
I have on the one hand, candidly, some difficulties. I don't totally agree with the 183 days, and you have made that point abundantly clear. If I make a profit on the charts, I pay a capital gain. I might get a dividend tax credit, but I do pay for a profit. People who make profit, make a gain, pay taxes. That's the difficulty I have on the one hand, and yet, with respect to balance with your needs and the contribution that you make -- of course you make an immense contribution -- by the same token, if you make a profit, shouldn't you pay taxes?
Mr Reeves: You need to understand that the model we're dealing with here is not a profit-making model in the sense that the organization is profitable, so the capital costs are not costs of the business. Capital costs under a municipality are historically paid by the municipality. We have created a model where we have taken the surpluses and applied them against that capital cost to reduce the burden on the municipality of having to have the venue funded. I'm not sure if that helps.
Mr Garwood: In North York's circumstance, our motivation for building a theatre in the first place was not only to bring culture uptown to the suburbs but to bring that in a way that wouldn't be a burden to the taxpayer, because these centres such as ours historically lose lots of money.
Mr Pouliot: With respect, I know that culture is in your nature. My focus is whether you make money or not -- I won't vulgarize your contribution by saying you're already in the entertainment business. We have places of worship, we have the grey eminence from the Scientology church with free IQs. Everybody wants to be treated fairly, everybody is unique, and nobody wants to pay more than some taxes, in fact, in many cases, no taxes.
The thing is our vice-chair, our parliamentary assistant, Mr Grimmett, has mentioned the Toronto Maple Leafs, like the true puckster that he is. It's a reality of the day. They are in the theatre business as well, except they don't go in the corner to get the puck. That's damaging. They are in the entertainment business. They pay taxes. The Blue Jays pay taxes. Theatre entertainment should not? I say if you make a profit, justify to me why you shouldn't pay taxes like everybody else. If you don't make a profit, we want to wish you well; you should be exempt from any taxes.
The Canadian Opera Company made an excellent presentation to us, long awaited. We want to wish them well. If I had my say, they wouldn't pay any taxes, for they are non-profit.
I'm sorry, but that's my position, sir. We differ.
Mr Phillips: This area is getting quite confusing because in my opinion, what's happening is the government has cut support from the province for the cultural community, and it is trying to make it up somehow by saying to the municipalities, "We're going to order you to not have property tax coming in," and it's quite a clever, creative political move, because on the one hand the government does what it wants to do, which is to cut support for the cultural community, but then the cultural community comes in and thanks them because they've ordered the municipalities to cut property taxes -- at the same time, I might add, as property taxes are now picking up 100% of the social housing costs, a huge part of the social assistance cost, all sorts of new costs. We have had several groups come in who have thanked the provincial government for doing this, for ordering the municipalities to cut their revenue on property taxes.
Having said all of that, the challenge is -- somehow or other you're caught in this storm, because currently you pay no property taxes. If my memory serves, I remember that the Hummingbird Centre and the North York performing centre and I think Roy Thomson and Massey Hall are all non-profit organizations. They operate on the basis of trying to break even. Whatever revenue is taken in, if there is more revenue than expense, you invest it in either capital upgrades or cross-subsidization for community groups and things like that.
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Now you're faced with a new expense, which was never there before, which is being ordered to pay property tax. Your nightmares begin to start again, because I think all of your organizations, at least Thomson, Massey and Hummingbird, less so North York, have gone through some challenging times over the last decade; not North York. Then you were asking the question, "Why us?" because what seemed to be a policy of encouraging the arts community is getting you caught with discouraging the arts community. Frankly, I can't quite understand the policy of this. What the government has said in its compendium doesn't seem to hold true. As I say, for smaller theatres, no property taxes. I gather the Princess of Wales and Pantages and what not are going to get some tax breaks. Why do you think you are being put in this position of suddenly having to pay potential property taxes? Have you been given a reason why the government wants that to happen?
Mr Cutts: No, we haven't really been given a reason. We're trying to find a method out of this. If we can demonstrate that we do cross-subsidize our own presentations or not-for-profit activities, make us exempt from it. We're trying to cope with the legislation that's been put before us. But none of us has paid property taxes. Our corporation has been in existence for 104 years, since the founding of Massey Hall. The Hummingbird has been in existence since 1960, so 37 years, and to my knowledge hasn't paid property tax, at least since the O'Keefe Centre came under the municipality of Metropolitan Toronto.
Mr Phillips: If the bill goes through as it is, can you give us any idea what the implications might be for organizations? I'm familiar that many organizations use your facilities; in fact, I'm intimately familiar with those that use your facilities on a one-shot basis for cultural activities.
Mr Cutts: If I may, perhaps the best example would be Massey Hall. About five or six years ago, we were fortunate enough to have a long run of the commercial presentation of Cats, and during that year the commercial producers rented the hall, and I presume they made a good profit. The stability of rent allowed us to cross-subsidize some improvements at Roy Thomson Hall; in other words, the generation of money from that activity helped us to cross-subsidize the Toronto Symphony Orchestra at a time when government and other financial pressures were on that symphony. We took a 25% rent reduction from the Toronto Symphony in 1992, and that subsidization alone was approximately $300,000. Our corporation would not have been able to do that had we not had the profits from the activity of Cats at Massey Hall one or two years earlier than that. That's the sort of magnitude, and also the fragility, that $200,000 or $300,000 is an important sum of money for our corporations in order to exist.
I'd like to add the point that I'm not sure everybody realizes what a great thing we have in Toronto right now, with three large complexes receiving no government grants whatsoever for our operations. It doesn't exist anywhere else. The National Arts Centre in Ottawa takes an operating grant somewhere in the vicinity of $15 million to $18 million a year. Every other theatre across this country receives some sort of subsidy. We have a mechanism right now that works, and what we want is to preserve the status quo.
Mr Grimmett: First of all, I want to make the statement that the legislation, as I'm sure you've heard from the ministry before, is an attempt to level the playing field between private and public theatres and between profitable productions, regardless of whether they're held in public or private venues. Just to clarify your situation, I take it that you are all officers representing non-share capital corporations; you all have charitable status. Correct?
Mr Cutts: Hummingbird, Roy Thomson and Massey Hall have charitable status.
Mr Grimmett: And you operate in buildings that are owned by the municipality, is that right?
Mr Cutts: Our building is a creature under the provincial statute, where Massey Hall and Roy Thomson Hall have their own act that was passed in 1982 or 1983.
Mr Grimmett: But all three buildings are owned by the public.
Mr Cutts: Correct.
Mr Grimmett: Does your corporation pay rent?
Mr Cutts: We pay a nominal $2 to Marathon per year for the site that Roy Thomson Hall sits on. There's a lease in perpetuity on the land as long as there's a concert hall there, and there is a nominal amount of rent. Our corporation owns outright the land and the building, Massey Hall.
Mr Grimmett: I see. And you book performances, and some of those performances are commercial performances.
Mr Cutts: Commercial?
Mr Grimmett: The people coming in are making money.
Mr Cutts: We would rent the theatre to commercial producers to make money, yes.
Mr Grimmett: And of those rents, that are presumably high, you use the surpluses to provide the theatre at a lower cost to other types of productions.
Mr Cutts: That's correct.
Mr Grimmett: What is your argument on the preponderant use test? I'm having difficulty following it.
Mr Cutts: If a facility goes over 183 days per year, there are going to be property taxes levied on that proportion. That is going to raise the cost base dramatically, and at the start of the year, we perhaps don't know whether we have 183 days of commercial usage or not. Presuming we were able to get a run into Massey Hall, what do we do? Go back and charge all the people a surcharge, if you will, for the property tax? Not likely, if the show is closed at the beginning of the year. Even the imposition of how we would enforce it would be very difficult for us.
Mr Grimmett: Do you not plan your schedule a year in advance?
Mr Cutts: We do bookings as short as five and six weeks ahead.
Mr Grimmett: What is the average distribution between so-called commercial and non-profit type of operations?
Mr Cutts: Last year, we had 70 event days at Massey Hall. If we were able to get a long run in, we would book it in a moment, and a long run could be another commercial presentation coming in and renting that theatre. If, however, when we had to declare how much the rent was -- we'd have to factor in whether the property taxes were going to be levied or not, because from my understanding of what the property taxes to Massey Hall would be, they would be equal to or greater than what the rent is per night of attraction at Massey Hall, and that would throw off all the reason for putting on the activity whatsoever.
Mr Grimmett: The legislation is designed to focus on the type of production that's put on, not whether the production is profitable or not. The design of the legislation is to make sure that productions in public facilities are treated the same way as those in private facilities. That's what we're attempting to do with this. Can you explain to me the test you're suggesting a little simply?
Mr Cutts: We're trying to get a simple formula for this government to put into power that takes away the power from the municipality as to whether they give us a property tax exemption or not, and if we can demonstrate that we cross-subsidize our own not-for-profit activities or cross-subsidize it to tenants of ours, we'd like the amount of property tax to be waived.
The Chair: Thank you very much for your presentation.
Mr Grimmett: I would like to add, Chair, that we've had a legal opinion that the federal charitable status enjoyed by these groups would not be jeopardized. That's the legal opinion we've received.
Mr Cutts: We hope that's the case.
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T. EATON CO LTD
The Chair: Could Chris Appleton of the T. Eaton Co Ltd please come forward? Thank you for coming today. You have half an hour to use as you deem appropriate; if you leave time for questions, I'll divide it equally among the three parties. Please introduce yourselves for the record and go ahead.
Mr Chris Appleton: Thank you, Mr Chair. My name is Chris Appleton, vice-president of real estate, the T. Eaton Co Ltd. Karin Chepswick is with me today. She is director of our property tax department.
Mr Phillips: I just wanted to ask if you have a brief.
Mr Appleton: Sorry, we don't have notes for you. I'm sure you will be receiving ample briefs from others that will speak to some of the issues I'll address today, in particular from the Canadian Property Tax Association. We're involved in that, as well as another group called the Retail Fair Tax Group. They will be more exhaustive in their presentation. I wanted to come today on behalf of Eaton's only, to focus on one main point.
Let me start by saying that we are supporters of property tax reform. We are certainly supporters of fair market assessment, actual value assessment. That's an obvious statement because we win on that. We think it's fair. We'd like to ensure it is the system that prevails for the tax bill we pay. You know we're not the recipients of the tax assessment per se; the shopping centre owner typically is.
The problem I want you to focus on throughout this from our perspective is, what happens if our assessment is wrong? Presently we get a separate assessment for business tax. We know that's being eliminated. That business tax assessment has been that avenue that has allowed us to appeal our assessment. If you take that away, we don't have an effective appeal right if the assessment is wrong.
Let me say the assessment community has been very professional and we work very well with them. We're a big enough taxpayer, in effect, to have the ability to do that; we have dedicated tax people. We have confidence in the bureaucracy to treat us fairly, but we believe it's important that there be some avenue in the event that there is an imbalance in the assessment. There could well be an imbalance because of the pressure brought by other taxpayers in that same shopping centre. The CRUs I'm sure will be lobbying to make sure the anchor tenants pay more. That's an ongoing issue. Everybody's well aware of that. I don't propose to say any more than that we endorse a fair market assessment, pure and simple. Keep it in place, and if it's wrong, we need recourse somehow.
I can't sit here and ask for a separate assessment, because I believe that's a non-starter, but I would ask you to focus on some mechanism to allow us to get at a faulty assessment. If it is a right of reconsideration, that is one avenue available. Let me reiterate that we have confidence in the assessment community; we just need to get at it somehow. The real problem could be that if we are overassessed relative to the CRUs but the aggregate assessment is low, we're stuck; we can't appeal anything, because the on-block assessment might be okay.
We're very concerned about that; we have some experience in other provinces where that is a problem. We work it out on the fly with the assessment community, but now this is the fourth province that has proposed to go into this kind of scheme, and we'd like to ensure we get whatever recourse we can have enshrined in legislation.
That's the simple point I have for you today. I could go on at some length about many other issues. I'll let others do that. I'll let the Retail Fair Tax Group give you the long explanation. But I wanted to reinforce it, because it's very important that we not be stuck with a tax bill that's too high. Everybody knows our situation this year. It's a tough environment. We lost a lot of money last year. I'm not blaming it on taxes, but we do pay $22 million a year in taxes in Ontario, so it's a significant cost. If that gets too far out of line, we have a problem. I'm not saying we shouldn't pay taxes; of course we should pay taxes. We want to pay our fair share of taxes and ensure it remains our fair share and that the tax bill that goes to the landlord for premises is the tax we pay.
That's my simple point for today. I just wanted to focus your attention on that as the key issue. I think you'll find that that is a key issue for all tenants, big or little. The little guys will want to get some relief on the tax increase they're going to face. I don't propose to speak to that today.
The Chair: Thank you very much. We'll start questions with Mr Phillips. There are 26 minutes left, so you've got lots of time.
Mr Phillips: I just want to make sure I understand your issue, which is tenant access to the basis on which the total assessment was assigned to the property owner.
Mr Appleton: Yes. It's essential to have that to determine whether it's a fair bill.
Mr Phillips: Okay. And is there something more than that that you're --
Mr Appleton: And recourse if it's wrong. I have to know what it is and how can I fix it.
Mr Phillips: And would that be recourse to the assessment review process? You're asking for the legislation to provide recourse for the tenant to appeal that at the assessment offices?
Mr Appleton: Well, somehow. Right now it's a full appeal right. What's proposed for the landlord is a right of reconsideration. At the very least, we would like the tenant to have a right of reconsideration for the tenant's piece. That assumes that we get that information, yes.
Mr Phillips: Just help me along a little bit. Here's how I understand the way it would work. Cadillac Fairview is told, "X shopping mall is assessed at such and such, and your realty taxes now will be X." Each of you has a lease with Cadillac Fairview that provides for the flow-through of the taxes, so the landlord would say: "All right. My taxes are $2 million. T. Eaton will be assessed X share of that." Who makes the decision on how the landlord makes that assessment? Is that based on your lease agreement or on legislation?
Mr Appleton: The lease agreement provides that the assessed value, as determined by the assessment authorities, flows through to us. We pay what we call the separate assessment. Presently we find that information by virtue of the business tax assessment notice, which is in effect an apportionment to each tenant of their share of the assessment. We pay on that basis.
Mr Phillips: Would your current lease typically have that you pay your business occupancy tax directly but that you then pay to the landlord the realty tax that is your assigned realty tax for that --
Mr Appleton: Correct, as determined by the assessors, because we are one of several pieces. The assessor will look at the anchors, all the CRUs.
Mr Phillips: Help me on the legislation. Will this legislation dramatically alter the basis on which that the total assessment is determined for a shopping mall?
Mr Appleton: The determination of the aggregate assessment?
Mr Phillips: Of how it's apportioned by tenant.
Mr Appleton: How it's apportioned I'm not quite certain, because I don't know what we're going to receive in terms of the apportioned values. Presently we're not scheduled to receive anything at all, so we would have to go through the layers, ask the landlord to provide it or to provide somehow access to the assessor and get at that information, and rely on our lease, which typically provides that the landlord has an obligation to do that, so we could go get that information.
Mr Phillips: With my limited knowledge in the area, I can remember in Metro about three years ago a serious problem with small tenants. I think some of the anchors had appealed their property taxes and had got a substantial decrease, and the property owners reassigned the cost back: If you go down, they go up. The problem then was that everybody, the small tenants, had signed a lease around the rental costs that took into account what they thought were lower taxes. Are we likely to run into a similar circumstance here where your rental costs have been negotiated, presumably, on the basis of an expectation of how property taxes are going to be allocated, but this bill will allocate property taxes in a different way, and small tenants will find they pay a larger rental cost per square foot and their property taxes will be disproportionately allocated to them? Is that a possibility of this legislation?
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Mr Appleton: I think it's already in place, in many cases, to the extent that assessment jurisdictions have gone to fair market assessment; that's already happened. That's a real issue. There is a shift in taxes from anchors to CRUs, no doubt about it. We think it's a fair system now. It happened three years ago, you're right. It was big news. It was in the papers. In fact, the anchors were required by a regulation to pay more taxes than pure fair market value.
Mr Phillips: Now that regulation is gone, with this bill. Is that right?
Mr Appleton: I believe it'll be washed out in this bill. I'd have to check on that precisely, but it was reimposed last year. It should get wrapped up through this. We should end up at fair market value. That's not the problem for us; it's clearly a problem for the CRUs. I think that's just going to happen. What will happen is that if the component goes up for that CRU rent, ultimately the minimum rent payable by that tenant is going to go down. The landlords are upset about that; it's going to reduce their actual return on their asset.
That's a real impact -- I'm not saying that's not an impact -- but we have to live with that. That's where we should be. When we go into a lease deal, we don't say, "We're going to pay so much, and a piece of it is taxes." We typically look at the rent we can afford to pay, whatever it is, $4, $5, and then we'll pay our taxes on top, and we want to make sure they're not out of line. We think taxes assessed on a fair attribution of rent or a deemed rent or whatever we come up with will pay that, and currently I think we're in pretty good shape. Our concern is, what if it gets out of line?
Mr Phillips: Help me out a little bit on why the government would not want you to have access to both the basis on which the assessment was done and then some appeal mechanism. We haven't heard a reason. We speculate that it's because they're expecting half a million appeals around the province on property taxes and simply wouldn't want to add a bunch of retailers to it as well. Have you any indication of why the bill does not provide you with what you want?
Mr Appleton: I personally don't have any indication of that. I can only speculate that it's an effort to reduce the number of appeals, because one shopping centre on one appeal is a lot easier to administer than 100, because you could have that many tenants. I haven't actually asked the government, so I would have to defer to others who may have an answer to that.
Mr Grimmett: I'll see if I can try to clear some of this up, but I think inevitably it'll lead to more questions from me similar to those asked by Mr Phillips, because this is an area -- I think it's most helpful to the committee that we have people like you come in here and provide your expertise and enlighten us.
First of all, the elimination of the business occupancy tax was meant to simplify the job of the assessor. It would no longer be necessary for the assessor to go into every commercial property and spend a lot of time with a tape measure or whatever method they use to determine each individual business and the value.
Perhaps you can help us try to understand the situation better and deal with the issue you raise, because it is one that many people have a concern about. In a typical commercial situation, the landlord is going to get an assessment notice. Currently, that assessment, in a large operation, is determined on the basis of incomes businesses earn. Is that correct?
Mr Appleton: I believe it's in most cases. Certainly when you go to an income approach with fair market value, that is the mature case.
Ms Karin Chepswick: Fair market rents.
Mr Grimmett: It's based on the rent you pay?
Mr Appleton: Not on our actual lease rents. The assessor typically will determine that the premises have a fair market rental value.
Mr Grimmett: And that is based on the income that business earns.
Mr Appleton: That's right. The assessor will attribute, say, $5 a foot to the anchor space and let's say $30 a foot to the CRU space, take the total income, apply a capitalization rate, and you get a value.
Mr Grimmett: That may be one of the concerns the government has in opening up the informal side of the assessment appeal process to individual tenants. For example, in the Eaton Centre -- who owns the Eaton Centre?
Mr Appleton: Right now, Cadillac Fairview and the Toronto-Dominion Bank. We're out. We just have a lease.
Mr Grimmett: All right. Let's say Foot Locker doesn't like the amount of tax that's being flowed through to them. Should they, in an informal phone call or a meeting with the assessment department, have access to the financial information for all the other tenants in the building?
Mr Appleton: No.
Mr Grimmett: Isn't that the issue here?
Mr Appleton: No. Our issue is to make sure that the value attributed to our space is fair.
Ms Chepswick: Also, the fair market rent is not specifically based on a tenant's income. It is what the assessor deems to be fair market rent, negotiated in the open marketplace, for that type of space. It does not identify contract rent; it does not identify a tenant's income. There really is nothing specifically confidential except for what is generally available in the open marketplace. If Foot Locker were to approach the assessor, they would find out what the assessor's fair market rent determination would be, and he would not get access to any real proprietary information from other businesses.
Mr Grimmett: I'm going to leave it at that and think about that one and let my friend from the third party go at you.
Mr Pouliot: First, let me apologize -- the Chair would wish me to do that -- for the noise from the demonstration outside. This is almost a daily occurrence. It makes it increasingly difficult to work here. Those are constituents, people like you and I, who come and voice their disapproval of what this government is doing to them. Please bear with us. It's almost a state of siege.
Let me wish the T. Eaton Co very well in their restructuring. I think you've gone about it the right way. I see that even your relationship with vulture capital, vulture funds -- for they are exactly that -- has proven quite well. The banks got advance payments, all in cash; they've done quite well. There was, from the private entity that T. Eaton is, not a contribution in kind, but real cash, exceeding $30 million, I'm told, so that augurs quite well. You've been an institution.
I get the impression, listening to your presentation, that the T. Eaton Co will benefit more by assessment than by Bill 149. Am I right?
Mr Appleton: Financially, fair market assessment is the win for us.
Mr Pouliot: That's a catalyst. That's it. That's your presentation, right, centred around assessment?
Mr Appleton: And that is in place in many jurisdictions. Yes.
Mr Pouliot: I wonder how the small retailer would feel if, let's say, taxes go up slightly. It could happen. They could go down slightly, they could remain the same or go up slightly. But the consensus we're getting is that there is the likelihood of a small increase, because they don't know where the transfer payments, the adjustment payments, will fit in yet. Until that is resolved, the consensus is that taxes are likely to go up. You benefit and the small retailer picks up the slack. And then the municipality uses your gain to come up with a subclass of taxes and adjusts the multiplier, the mill rate, so that the money you save on the one hand they take right back with the other. Is that a possible scenario?
Mr Appleton: Absolutely. We are exposed to a multiple tax rate. We are exposed with multiple classes. I didn't get into that today because I wanted to focus particularly on the bill.
Mr Pouliot: So we're not to celebrate too early, unless the government dictates -- and they're not opposed to that, believe me -- to the municipality who they should tax and who they should not tax. They're pretty bold that way. It's part of what they call the Common Sense Revolution. They just push their agenda forward that way.
Unless there is that protection for the T. Eaton Co and others, you could be left -- they don't mean ill to anyone, but the municipalities need the money. They could readily just fill the vacuum by bylaw. It could be done tomorrow. In fact, you wouldn't even see the cheque. The money that you've worked to save could just be compensated for by the multiplier. "We'll adjust the mill rate to get the money back," because there are a lot more small retailers than there are big ones, and a lot more residential. Everybody votes, but we only vote once. There's a lot more residential, and social housing to address, people who are marginalized and are the less fortunate. I mean, they're out there. Can you hear them?
I want to wish you well, but I don't know if I would roll the dice. I wouldn't wish to be in your shoes. It's two months before, and we don't have any guarantees. There are all kinds of questions, very few answers. I feel we have an excellent civil service. They're committed, they're dedicated, but if you see anybody with handcuffs and a straitjacket, it's the civil service walking back and forth in the corridor, because it's impossible to get some information from these people. We don't even have an impact study. Anyway, good luck.
The Chair: Thank you very much for coming and for your presentation.
The committee recessed from 1202 to 1305.
MARVIN GOODMAN
The Chair: Our first delegation this afternoon is Marvin Goodman. For the record, would you please identify yourself, and then you have half an hour to use as you wish. If you wish to make a presentation and leave time for questions, I'll divide that time equally among the three parties. Please go ahead.
Mr Marvin Goodman: I'll be brief. Good afternoon to the committee. My name is Marvin Goodman. I'm here representing the Goodman family, who are the owners of a farm of 100 acres located in Mississauga at the intersection of Derry Road and Kennedy. The Goodman family have been in the farming business for many generations. Going back briefly, my grandparents came from Poland and Europe; there, they were farmers. They inherited a farm from their parents; they had a dairy farm as well as orchards. They emigrated to this country in 1916, and after a long while of saving their pennies they bought another farm at Weston Road and Jane Street, where they again continued farming. This was in approximately 1936. The land there became unsuitable for additional farming because of the encroachment of commercial areas, and they gave that up and for a while nothing else happened.
In 1950, we went out to Mississauga and saw a farm that grew strawberries, and we bought that farm, on Winston Churchill Boulevard. That was in 1954. We still own and have that farm in our possession.
In 1964, we bought the farm under consideration today, at the intersection of Kennedy and Derry Road. There, we proceeded to farm and have done so for the past three and a half decades to this very day, and we still do.
There was a period in the late 1980s where there was a lot of talk of residential and commercial/industrial development going on in the city of Mississauga. The land owners around us were rezoning their properties with the idea of possibly selling them in the near future. We entered that zoning process in order to protect our interests and see that we weren't squeezed out during the process of others getting their zoning and development. We continued farming, and still do, as I mentioned earlier, except for one period in 1987-89, during which time we had some management problems internally and we let the land stay fallow for that period. But immediately thereafter we again resumed farming.
At the moment, the city provides us with no services. The land has exactly the same status it always has had. There has been absolutely no change in the property since the day we bought it. The only change that has occurred is that three years ago the property was reassessed, and the reassessment changed the taxation from $3,000 per annum to $300,000 per annum, an increase of 10,000%. Needless to say, this was unacceptable and impossible for us to bear. It would mean that the property would have to be sold, even, if necessary, to sell it at distress in order to meet the $300,000-per-year payment for taxes.
It is our feeling that the situation is too onerous for us to bear. We are looking to the committee to reverse that position and make it acceptable for us to continue with our farm and our farming operations. That, in summary, is my position.
The Chair: Thank you very much. You have about 25 minutes left. I will allow questions from the different caucuses. We'll begin with the government caucus.
Mr Grimmett: Mr Goodman, you indicated that the farm at Derry Road and Kennedy is 100 acres?
Mr Goodman: That's correct. Excuse me, 96 acres, to be exact.
Mr Grimmett: What kind of farm operation do you have there?
Mr Goodman: Currently we are growing grains, basically feed grains.
Mr Grimmett: When did you rezone the property?
Mr Goodman: It was in about 1986, I believe, or 1987. I'm not exact on that.
Mr Grimmett: How long did the process to rezone it take?
Mr Goodman: I can't say for certain.
Mr Grimmett: What is it zoned now?
Mr Goodman: I believe it's zoned as industrial/
commercial.
Mr Grimmett: Presumably the current annual taxes of about $300,000 are a reflection of the market value of that much industrial/commercial property in that part of Mississauga?
Mr Goodman: I can't address that. I'm sorry.
Mr Grimmett: Have you read Bill 149 or are you at all familiar with Bill 149?
Mr Goodman: Not in its entirety. I have glanced through it, but I'm not that cognizant of it.
Mr Grimmett: This property that has been rezoned, would you say that it is in the process of being developed for eventual industrial/commercial use?
Mr Goodman: That's a thought we've had, especially since this assessment.
Mr Grimmett: Can I ask who "we" is? Is that you and your family?
Mr Goodman: That's correct.
Mr Grimmett: I assume you were part of the decision to rezone the property industrial/commercial.
Mr Goodman: That's correct.
Mr Grimmett: What is your plan currently if you continue to pay $300,000 a year? I don't think you'd get that from selling grain.
Mr Goodman: Exactly.
Mr Grimmett: What is your plan, if you don't mind disclosing it?
Mr Goodman: To be candid with you, we haven't formulated a plan. We're hoping that something will be done to let us avoid having to take any steps in terms of disposing of the property.
Mr Grimmett: If you're so interested in operating it as a farm, why did you zone it industrial/commercial?
Mr Goodman: Mr Grimmett, I explained that the surrounding neighbours were in the process of rezoning their properties. It was our information that if we didn't do something, we might get squeezed out in the process and somehow get the lower end of whatever was available. As a result, we were told we should go through that process just to protect ourselves.
Mr Grimmett: So you had to make a choice to go to some other kind of zoning, and you chose industrial/commercial as the better option because you didn't feel you could leave it as farming?
Mr Goodman: I don't think that was our choice. I believe that was what the area was in general zoned as.
Mr Grimmett: All right. Well, I think your situation is perhaps somewhat unique. But as you haven't read Bill 149 or are not familiar with it, I think I'd rather just pass my time on to the next party.
Mr Pouliot: I will pursue Mr Grimmett's line of thought. Welcome, Mr Goodman. You are appearing in front of the committee as a private citizen, a citizen who is in a bind.
Mr Goodman: Absolutely.
Mr Pouliot: I know my colleagues well enough, and they will afford me the latitude to say the following: I think we all feel the same in sharing your impasse, your dilemma, that no 96 acres of land will yield enough revenue to pay $300,000 in taxes. Even the most productive 96 acres with the Medellin cartel would not yield $300,000 in taxes. I don't speak from experience here, but it's not that lucrative.
I need your help. You asked for a zoning change.
Mr Goodman: That's correct.
Mr Pouliot: Were you aware of the consequences taxwise?
Mr Goodman: Not at all.
Mr Pouliot: I would ask for a zoning change -- I'm trying to put myself in your shoes -- if a deal was imminent; if Tridel, Cadillac Fairview, Campeau Corp, if a major corporation was to approach me and wished to build. If they required me to enact a zoning change, I would do that or if I myself and the family had some plans. Otherwise, it would be nothing short of financial suicide.
Mr Goodman: In hindsight, I agree with you.
Mr Pouliot: Again, the fact that you're here means the system works. I don't have answers to your problem. I don't even know if it's possible to petition to have another zoning change back to what you were.
Mr Goodman: I'm unaware if it is.
Mr Pouliot: I know people are terribly busy, but they're well meaning. I will leave it with the good office of our good Chair to have someone from the ministry help you. Of course the committee and government cannot do this for everyone. But you've extended the courtesy of your time, you're paying us the compliment of your visit, and you believe that somehow we will listen. I have nothing else to say, but I think we should see what we can do so that the situation of Mr Goodman can be looked at a little more closely.
Mr Grimmett: I'll certainly undertake to do that.
Mr Goodman: Thank you, gentlemen, very kindly.
The Chair: Actually, there is a little bit more time. I'd like to give Mr Phillips the opportunity to ask you some questions as well. Mr Grimmett is the parliamentary assistant to the finance minister. He has agreed to undertake to investigate on your behalf.
Mr Goodman: I appreciate it.
Mr Phillips: That's probably the appropriate approach, because frankly your issue is only barely related to the matter before us, which is Bill 149; it's only indirectly related to it.
Mr Goodman: I understand that.
Mr Phillips: I'm glad Mr Grimmett will undertake it. It's not unusual, actually. I've seen people in similar circumstances, where they have land zoned agricultural and they hear that all the land around is going to be rezoned, and "What do I do?" There's always this fear that the ones who are in the business, because they're in the business, will leave you somehow rather isolated. So I understand how you got into this situation. I can see that every day that goes by there's another $1,000 on your tax bill, and you multiply $1,000 by a significant number of days and pretty soon you're bankrupt. So I think Mr Grimmett will get back to you, and that's good.
Mr Goodman: I thank you all.
The Chair: Do you have anything else you'd like to add? You have more time if you'd like.
Mr Goodman: I think everything has been covered, and I wish to thank everybody for their time in listening and giving me the opportunity.
Mr Pouliot: Just if I may, I've taken note listening, yours is a real human dimension story. Help me. In 1916, your grandparents who came here, they didn't have much, did they, Mr Goodman?
Mr Goodman: Very little. They came with the shirts on their back.
Mr Pouliot: They thought they had a lot to look forward to, and they did indeed.
Mr Goodman: No doubt and no question. They were as thankful as you could possibly be; they made certain that I was aware that they were. I still don't understand, quite honestly, what was their guide.
Mr Pouliot: Yours is very much the history of our vast and magnificent land. That's what Canada is all about, in good times, bad times. You cited 1936. The Great Depression spared hardly anyone. Through difficult times, when all was dark, they could see the stars, they kept believing and believing, and then by the stroke of a pen -- maybe we should all be more careful, exercise due diligence. But sometimes we don't have resources and knowledge. But all those dreams could be shattered, all that history.
Mr Goodman: When I was growing up, when they would tell me how thankful they were to be here and how the very ground was sacred, I couldn't understand it. It wasn't until my later years that I was able to comprehend somewhat, but not totally, what they meant by it.
Mr Grimmett: Mr Goodman, the gentleman at the back with the red shirt on will get the information from you, and I will correspond with you. Bill 149 tries to take into account your situation. If you haven't reached the draft-plan-of-subdivision stage, you should at least be in the lowest quarter. But that's something I'll discuss with you at another time. Thank you for coming.
The Chair: There will be a five-minute recess while we're waiting for the next delegation.
The committee recessed from 1322 to 1328.
HOTEL ASSOCIATION OF METROPOLITAN TORONTO
The Chair: The Hotel Association of Metropolitan Toronto, Mr Rod Seiling.
Mr Rod Seiling: My name is Rod Seiling. I'm president of the Ontario Hotel and Motel Association and the Hotel Association of Metropolitan Toronto. I want to thank you, Chairman, for the opportunity to appear before you and your committee today.
The range of members in our association, which numbers about 1,000, is very diverse. Our members go from the largest hotels in Toronto to the very small in rural Ontario. What they do have in common is a concern that the property tax system provide them fairness and equity. To that end, we congratulate the government for taking the initiative to finally fix the system. Everyone agrees that the old system was broken but no one would come forward to institute the required changes. In doing so, however, the government may be laying the groundwork that future governments could create a property tax system that would be as unfair as the one that is about to be replaced.
Before I get to the specifics, I want to deal with a perception emanating from the passage of Bill 106, that hotels, especially in Toronto, were big winners. What Bill 106 did was provide fairness for hoteliers where the level of assessment was approximately twice that of other commercial properties. This should mean that the property tax burden for hotels should be aligned with that of other commercial property. However, municipalities will have the power to set the tax bands within the tax ratio range that is to be established by the Minister of Finance.
With Bill 149 set to allow for some discrimination of subclasses within the commercial property sector, hotels, for example, could become a discriminated subclass once again. We continue to urge consideration for an amendment to ensure that the creation of any subclass is done through legislation, not by consent of the Minister of Finance. We suggest that this can and will put undue pressure on the minister of the day, no matter who he or she may be.
It is also important to recognize that while the tax ratio for the commercial class is to move to within the range prescribed by the Ministry of Finance, it may still fall out of that range for the first year as long as the tax ratio for the property is less than or equal to the transition ratio for the property tax class in the municipality. In fact, regulatory operations may work so that the tax rate for a property may or may not move to the point where it is that of others within the property tax class. The reason this scenario is a possibility is because of the interaction of the transition ratios, the ability of the minister and the municipality to extend time limits and the municipalities' graduated tax ranges.
Graduated tax rates may be admirable in principle, but they may create as many inequities as they are supposed to prevent. Graduated tax rates for commercial property are intended to address historical underassessment and low business rates paid by small retail businesses. Without graduated rates, some small businesses could face large tax increases. However, as I indicated, problems arise from trying to interject a new level of fairness. Some of those are:
(1) It singles out small buildings, not small businesses, for special treatment. A business operating in a small building can be very profitable, while a small business, even a large one, operating in a large building may not be profitable, relatively speaking. Hotels are a prime example of that. Thus, small businesses in large buildings receive no benefit, no relief, while large businesses in small buildings receive relief.
(2) Reassessment may cause tax changes that graduated rates cannot address.
(3) Many businesses do not want to be subsidized by other businesses. I know that, if you haven't already, you will be hearing from the CFIB, which has a survey out to that effect.
(4) It fails to deal with the problem of cross-subsidization of residential by business.
(5) It provides municipal councils with a way out of dealing with the overtaxation of commercial property relative to the residential class.
(6) It could skew the construction marketplace towards small buildings, which will continue the ages-old history of hotels subsidizing other businesses, many of them much more profitable.
Obviously another major concern is the lack of a uniform definition of low income or disabled seniors for the purpose of providing mandatory tax relief.
Finally, given the accepted fact that most municipal politicians recognize, that residents vote and businesses don't, the concerns expressed here today are very real. They are not just theoretical concerns; they can and may very well occur. We ask that you make the required amendments to Bill 149 so that the intended benefits that property tax reform was to confer are not undone by municipalities or future governments.
The Chair: Thank you very much. We have about 25 minutes left. We'll go to the NDP caucus first, please.
Mr Pouliot: Welcome once again. Mr Seiling, always a renewed pleasure. You keep on top of the legislation. I certainly share the sentiment of the last sentence of your timely presentation. Bill 149 could be any bill. "So that the intended benefits" -- whatever -- "was to confer are not undone by municipalities or future governments." With our friends the Conservatives, don't we wish that some of our legislation could only be undone by ourselves and not by future governments of a different stripe.
Are you seeking protection against the municipalities when you're asking that classes be defined in the act itself?
Mr Seiling: I think I'm being very consistent, if you'll recall my presentation on Bill 106. First of all, I want to commend the government for having the courage to tackle this problem; it's one that governments of all stripes in the past refused to deal with or couldn't deal with for one reason or another.
Our concern is that municipalities and municipal politicians quickly recognize and understand that residents' concerns come first because they're the voters, and they need to be elected and then re-elected. So you already have an oversubsidization of the residential class by businesses, especially the commercial class.
We're concerned that municipalities, with the ability to create new subclasses just by asking the Minister of Finance, whoever he or she may be, in future years, not knowing what is going on in other aspects and the business dealings between the government of the day and that municipality -- we're concerned about what could get traded off or that what could be perceived as logical or reasonable may change over time.
We believe that if it's reasonable to assume there's a good reason to have a new subclass, then surely it should be done through a legislative process and an open hearing. We believe an amendment should come forth recognizing that, because no matter who the government of the day may be, it could put very undue pressure on the minister of the day to do some things that in the cold light of day may or may not meet the litmus test of a public policy process.
Mr Pouliot: So being, in your words, "big winners," we might be premature; it's not cause for celebration yet. It could be left at the perception stage. This devolution will cost money, there is no question. Municipalities will take on added new responsibilities. Any time there is change, it does cost money. They will be left or they will see themselves as being left perhaps, in your real world, with no other choice but to generate at least the same amount of money. Probably they will need more money. There will be a reassessment in the city of Toronto of major consequence. By assessment and reassessment alone, there will be some dislocation, some variance. It will vary greatly, but in some cases it will be consequential. The people in Forest Hill, the people in some of the better -- I need your help. I live so far outside. What are the most --
Interjection: Rosedale.
Mr Pouliot: Thank you. Not Parkdale, but the opposite of Parkdale. They know that their taxes could possibly double. They haven't been assessed since the 1940s or 1952 or whatever, so they're going to get hit big time, and for them, when you say "revenue-neutral," they won't swallow it if you're getting a break and I'm not getting one. You're right, the municipalities might go after any opportunity to take the money out of your savings, there's no question about it.
Mr Seiling: Mr Pouliot, first of all, we believe it's long overdue and we are very supportive of the reassessment process. You raise the area of Forest Hill. The average house in Forest Hill pays a tax on that whole house which is less than the tax on one average hotel room in the city of Toronto, so it's not fair. Yes, there's going to be some relocation, but it has not been fair for the past 25 years that an industry has subsidized other people to the point that they were taxed into bankruptcy. There haven't been very many hotels in this city that have not had to undergo serious dislocation and relocation simply because the property tax system put them in the poorhouse. From that perspective, we are very supportive of the process.
All we're saying is that we don't want to see it undone by future governments just by the stroke of a pen, that if there are good public policy reasons that a new subclass should be created in the commercial sector, then surely it should be done through the legislative process as we're going through today, where everyone gets an opportunity to put forth their reasons, pro or against, and accept that. All we're asking for is to maintain the fairness and equity that Bill 106 is finally providing to our sector.
Mr Phillips: I agree with your point on dealing through legislation, not regulation. I don't know whether the public are aware of the consequences of what's happening, but we are approving laws for this government and future governments, and there's a companion piece of legislation going through right now, as you're familiar, called Bill 160, which will set property taxes on your buildings. Probably 54% of the property taxes on all of your hotels will be set by the minister, by regulation, and the minister has unfettered rights in that bill to vary it within a municipality by different rates, set different classes, set whatever rate he or she wants, all by minister's regulation. I think you've got your finger on a major issue. I regard it as unprecedented. I've never seen a cabinet that has given itself the authority to set $6 billion worth of taxes, never having to even get the approval of the Legislature -- just sign a document.
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If you have not examined Bill 160, I urge you to get into it, because it puts into law the authority not for the municipalities but for the minister to do this, so this minister or any future minister could say, "We've decided hotels around the province should be in a different class, and we will set the tax rate on education ourselves on that." I know a lot of the business community may say, "It's Mike, and Mike wouldn't do that to us," but Mike won't be around forever, and you never know. Governments come and governments go, as we all know.
I appreciate your first recommendation. By the way, I'm actually amazed at the Conservative caucus agreeing to the bill, because it is governing not by the public but by the cabinet.
Mr Pouliot: That suits them fine.
Mr Phillips: When you're in government, you may like it.
I agree with that point. I think you make a good point on the graduated commercial tax rate. You say it singles out small buildings, not small businesses, and my own judgement is we're going to see a bonanza for lawyers, because they will find ways of subdividing properties that had never been imagined before. We'll see more condominiums in the First Canadian Place than you can imagine. I think you've got your finger on a second major problem. The third one I'm not as clear about, uniform definition of "low income" for seniors. So I appreciate your first point, and we are trying to get the government to move to putting more of this in legislation and less in regulation.
Can you just help me along a little bit with your concern about the lack of uniform definition of "low income" or "disabled"?
Mr Seiling: It's my understanding that the bill makes provision for mandatory payments, and without some uniform guidelines as to what that should be, those can vary substantially. As we have seen, for example, here in Toronto, which will disappear come January 1, if you look at what the city of Toronto might pay versus what the city of Scarborough or the city of Etobicoke might pay, you get some wide disparity, so again, we think there needs to be some uniform guidelines as to what they should be and who should qualify for them. Obviously you need more to live in certain areas of the province than you do in others, but there should be some guidelines as to what those qualifications are so you don't get dislocation of people going from one area to another because the benefits are better and it pays better to live in a certain area.
Mr Grimmett: Welcome, Rod, to the committee. Thank you for your presentation. I'll deal first with the low-income and disabled thing. Bill 149, as I understand it, extends the requirement in Bill 106 that municipalities establish some form of program for low-income or disabled seniors should they be affected by shifts. That's the purpose of that policy. You indicated that it required payments, but you must have misspoken, because it's not payments; it's a program to provide a deferral or some other kind of relief.
Mr Seiling: I apologize. In my view, if you defer something, it's a payment. In a strict accounting sense, it's a debit to somebody's books, and that's our point with it.
Mr Grimmett: Fair enough.
Mr Seiling: All we're saying is that we believe there should be some establishment of guidelines as to who qualifies and who doesn't. It could become a very contentious issue somewhere along the line as to who is in and who is out -- because they are payments. I hear what you're saying, but somebody is receiving something. Although it's a credit to them, it's a payment to someone else.
Mr Grimmett: Our theory is that we are telling municipalities they must set up some kind of program, but it's up to them to tailor those programs as they see fit in their community, rather than perhaps imposing a Toronto model on everyone in the province. I couldn't help thinking when you were talking about the business and commercial class being concerned about the residential class underpaying that in some parts of the province, like the part that I come from, the opposite is in fact true, that the residential taxpayer to some extent subsidizes the industrial and commercial taxpayer. So it isn't just one model necessarily, and that's part of the problem in trying to address assessment problems. Parts of the province differ from others. What we're trying to do here is establish a system of fairness that's province-wide, but it certainly has its challenges.
Mr Seiling: As I've said, and I'll say again, we congratulate the government for tackling the problem. It's massive. All we're cautioning is that you don't, in the process of fixing it, sow the seeds for future governments to undo it without some checks and balances in place, and our concern is very much that with this ministerial consent only, these things that have been worked on very hard to correct, left to the municipality whim of the day, could come undone very quickly.
I'll use a perfect case as an example: the hotel issue here in Toronto, where hotels are literally taxed into bankruptcy. Everyone recognized the problem, but 25 years later it still wasn't fixed until Bill 106 was passed. The corrections start. Now, because of the phase-ins, we don't know what the variable tax rates will be, what comes out we won't know for a while, but at least there is a process in place. We weren't extremely happy about it, but at least there was a process in place that various governments didn't want to take the legislative route to do. At least there was a process. Of course, there are others who would have said: "Leave it the way it is, because the hotels are subsidizing others commercially and residentially."
We don't want to see that undone, wake up one morning and find out that the local council has decided to approach the Minister of Finance to have a special class. I think where it becomes very scary, and we can all theorize about Toronto, but take this to a smaller community where, for whatever reason, the local council doesn't like a businessperson who's carrying on a business, and all of a sudden that person wakes up and finds that his business happens to be the only business in town that is now in a new subclass of property. Now they're in big trouble. It's not a Toronto issue per se, although it's a very real concern here; it's one that extends right through to small, rural Ontario.
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Mr Grimmett: I understand, and I think it is a valid concern that anyone would have when they're trying to address reform of the assessment system, but I can assure you that our government doesn't want to see this legislation leading to either bonusing or the targeting of special businesses. The minister has indicated that he has retained the power, through regulation, to prevent that from happening if the legislation, if it's passed, is abused.
But the legislation currently contains a number of checks and balances such as tax ratio restrictions and also the range of fairness, which are going to be addressed by municipalities in designing how they set up their commercial and industrial classes of assessment. We have heard your concerns from other groups though.
Mr Seiling: I appreciate that, but all I'm saying, and I'll say it again, is my concern isn't for the current Minister of Finance of the day; my concern is future ministers of finance, what may or may not be going on at the time. All we're saying is we believe it puts undue pressure and could put the minister of the day, he or she, in a particularly problematic position, not knowing what else is going on in the province at the time.
We all know there are tradeoffs every day, so who gets traded off for what? All we're saying is that if it's good public policy to create a subclass, then surely it shouldn't be a problem doing it through the legislative route. If it makes eminent sense to do it, then surely there should not be a problem in doing it through the legislative route.
Mr Pouliot: Maybe it should be in the Constitution.
The Chair: Thank you very much, Mr Seiling, for coming today. We appreciated your interesting presentation.
CITY OF BRAMPTON
The Chair: Would Mayor Peter Robertson, from the city of Brampton, please come forward. Welcome, Mayor Robertson. Thank you for joining us today. You have half an hour to use as you wish. If you leave time for questions, I'll divide it equally among the three caucuses. Identify yourself officially for the record please, and then go ahead.
Mr Peter Robertson: My name is Peter Robertson, presently the mayor of the city of Brampton, just on the outskirts of the GTA. I'll try to start with a little relaxation, mainly for myself.
I went to the bank today with a $20 American bill, because my wife left town and I don't have any money. I hadn't got to the bank yet, and I had to pay my parking. In anticipation of paying it in Canadian, I put the $20 bill on the table for the teller and said, "Could I have Canadian money?" She said: "Yes, sir. There will be a $2.50 charge for this service." I was caught off guard a little bit, and I said: "Could I have my $20 back? Thanks for the insult. I'll try to find another way of getting this exchanged." I say that because banks, with all the charges they are putting on people, are overstepping what I think is good practice. I don't know if you feel that way or not.
In 1972 I bought some property and built a home out in the country, and it was zoned for estate residential. That was 27 years ago. In approximately the same year -- I don't know that, but it's approximate -- Bramalea Consolidated zoned some land very close to us, on Airport Road, for industrial land, as well as homes, some 27 years ago. It has taken at least that time to sell out the industrial subdivision, and where I live, we're not going to see homes for at least another 10 years. The water and sewers aren't going to get to that area. I wanted to start off just saying that it takes a long time to develop some lands even from the point of having a subdivision. Whether it's my home or a developer's home, that's the process.
I'll start in with the script as I prepared it. I don't have staff with me. The treasurer of the city helped me prepare the chart that I'm going to share with you. I've checked it over with an assessment consultant, so what I'm going to say is correct to the best of my knowledge.
I am astounded that the Conservative government, which has the great respect of the business sector, is moving ahead on assessment reform that fundamentally alters incentive. If a Conservative government does not know the fundamentals of incentive, then what government would?
The well-meaning bureaucrats in finance who have designed and written Bill 149 must be challenged. They are living in an ivory tower. I'm sure what's before you is their best effort, but when the rubber hits the road -- I've been a politician in Peel for 20 years -- it just doesn't translate.
To sell a pair of shoes, you must have an inventory of shapes and sizes available for sale. If someone walks into your shoe store and you don't have the size available, you can bet the customer will walk out of the store. More fundamental than that is, if they walk into your store and you don't have any shoes at all, they'll walk out of your store without a sale. The last principle is price. If you have the shoes and the sizes and the price is guaranteed to go up every year, pretty soon the people won't be coming to your store because you have priced yourself out of the market.
Please let me illustrate that simple idea in terms of this assessment. On the average in the city of Brampton, the industrial developers sold 30 to 50 acres per year over the last 10 years. This year we sold 300 acres. Our inventory of zoned and fully serviced land is running low. We do not have a good inventory of shoes, or industrial land, for sale in Brampton today, but we're trying to do something about it with our new official plan. This is why I'm here today to talk about incentive that's implied in your proposed Bill 149. I think it's tinkering with disaster.
Your new act, as I understand it, talks about "farm land awaiting development." The following chart outlines what my city treasurer says will happen in Brampton with the new Bill 149. You'll be interested to compare it to the UDI figures which you received apparently yesterday. Our calculations are that UDI has seriously underrepresented the facts. Turn to the chart for a minute. It would read like this. Presently a farm is going to be taxed at about $46 in Brampton. We'll skip the next line for a minute. If it's industrial land that's zoned, like the Bramalea lands, and they're farming it, our council will be able to determine a reduction factor of 25% to 50%. You can see that what Bramalea Ltd would be paying $76 for is now going to be somewhere in excess of or on the average of $4,000 or $5,000. If that land is registered, and it is, and there is a farm use on it, the council has a little more discretion, in that we could reduce their costs 25% or even extend a one-third to two-third reduction. But it's still going to be a significant increase and carrying charge.
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The last line in the "Industrial" sector shows that we're going to get a major increase in income, which we are looking forward to, when a building permit comes on. That's the day when we all should celebrate, because it means new jobs in Ontario, new building construction under way in Brampton and a good revenue stream for the city.
Without repeating the chart, you can see that the same thing is going to happen with commercial. We have some proposed plazas. These are all based on one acre. There's a small proposed plaza, a zoned-for plaza, on Torbram just north of Bovaird. No one really knows when that's going to come on stream. There's a 50- or 60-acre commercial site at the corner of 410 and Bovaird. These things are real. They stay in development until the market is ready.
What I'm trying to present on page 3 is going to be a nightmare in changing the economics of the development of land in my city. Already our assessment department is fighting with land owners trying to prove that it is the zoning on the land that triggers assessed value and denying that the actual use of the land, that being land that is farmed, is the basis of actual value.
I came before this committee previously, and Hansard has a copy of a case I brought before you, the Wilson property. For four years in succession the assessment department took them to the Assessment Review Board. Four times they won. Four times they were taken to the Ontario Municipal Board. Four times they won at the Ontario Municipal Board. This year they took them back to the OMB again. Five years in a row these people have tried to show and have shown conclusively to two different panels that their land was farmed.
The assessment department in Peel is saying that it doesn't matter if it's being farmed; the issue is, have you got a plan of subdivision in process, have you got a plan of subdivision registered or have you got a plan of subdivision and started construction? What is going on with some people in our community is clearly harassment. The example of going to the bank teller this morning is just a little measure of the kind of frustration that person feels when they're taken to court by government for four successive years and they win four times and to defend themselves the lawyer's bill is somewhere around $200,000. This government is sitting there, letting it happen. I've reported it to you. It's in Hansard, it's in your hands, and no one is doing anything about it.
Even when assessment appeals are won at the Assessment Review Board, our assessment department takes the issue to the OMB. Apparently this argument will continue with the new legislation. Now you can see how the new act will escalate the price of industrial and commercial land so that land prices must double each 10 years, just by taxes. Every 10 years, the value of industrial land for sale in Brampton is going to double. If the land was purchased on borrowed money, the land values are going to double every eight years. So, automatically the price of land in Ontario, not just Brampton, is going to be compounding the actual value of land with this bank and government regulation. With this assessment escalation of land waiting for development, Ontario will soon become uncompetitive with the United States and, of course, globally.
I just had a meeting with a gentleman who is in business in Brampton. He imports a lot of tulip bulbs from Holland. His job is to package them and then put them out in the retailers' stores. He recently had to sharpen his pencil to keep the business in Canada, because they had an American offer to do the same thing. This government doesn't need to be told how competitive it is and how land prices are part of the equation.
This government must not artificially inflate industrial/commercial land values by this taxation tinkering. This government must leave the incentive to have land ready to go for the entrepreneurial and manufacturing sector. I think you are aware of what's going to happen if this tax goes on. The developers will not have 300 or 400 acres ready to go in Brampton; they'll wait till there's a sale, and then they'll bring forward their application, and it might take six months to get the rezoning. This government must make an investment for the future and trigger taxation on building permits.
My first recommendation is that no matter who is farming the land, as long as it is being farmed it should be at the farm rate.
Recommendation 2: Amend the Planning Act to allow agriculture to be an interim zoning on and use of lands awaiting development.
Recommendation 3: The Urban Development Institute requested an amendment to the Planning Act to prevent municipalities from prohibiting the growth of agricultural crops on farm lands awaiting development. I would concur with that.
In the city of Brampton, we have a resolution of council to create a bylaw that recognizes farming as an interim use of lands zoned industrial, commercial and, in some special cases, residential. We believe it is good stewardship to farm the land and keep it productive while it is awaiting development, because it could and does take 10 to 20 or more years, as I've illustrated, in many cases to plan and hold lands ready for development. The city of Mississauga has taken the city of Brampton to the Ontario Municipal Board to delay and discourage us from implementing this principle. This is a good example of why the government should amend the Planning Act to prevent municipalities from prohibiting the growth of agricultural crops on farm lands awaiting development. At least allow the cities which wish to have dual zoning on lands awaiting development to do so; it should be deemed frivolous to object if a neighbouring municipality wishes to do so.
Payment in lieu of taxes, recommendation 4: It is critical that the province clarify a fair and equitable approach to revenue sharing of PILs, payment in lieu of taxes. While the region of Peel is responsible for maintaining and expanding the local road network to Lester Pearson airport, because Airport Road is a regional road, and the Peel police are responsible for policing the airport, they get no share of the approximately $11 million annually that is passed through to the local municipality. Legislation must require such payments to be shared with school boards and upper-tier municipalities. I'd love to be a municipality that gets a $11-million grant and doesn't have to share it with the region or the school board.
Recommendation 5: Preserve woodlots across Ontario, particularly on agricultural lands awaiting development. The text of Bill 149 on managed forests has the potential of protecting trees if they are on large tracts or tree farms and registered in the Ministry of Natural Resources program. However, smaller woodlots on lands awaiting development are encouraged to be cut down in order to qualify, through the Assessment Act, to be under cultivation and part of an agricultural use.
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This is happening every day in the city of Brampton. When an assessment appeal goes in and the assessment department says, "This woodlot is not a crop, it's not farm land; you're going to be taxed higher for that little bush of trees," what do you think is the natural outcome? Take the trees down, get it in crop and try to get your taxes down to the agricultural use. It happens in the city of Brampton. On an 80-acre farm in west Brampton, owned by Jay Polon, the reassessment department singled out his woodlot for higher taxation. This is becoming standard practice, as I have said. As a result, they are encouraging land owners to cut the trees and to farm.
Last of all, conservation lands: It is the growing practice in Peel to assess valley land at higher values than prime farm land, at about four times the value of prime farm land. In terms of market value or actual value assessment, this makes no sense as these lands are to be deeded free to the municipality or conservation authority at the time of the subdivision. As you know, from rim of valley to rim of valley goes free to the municipality or conservation authority, and yet the people who have that land are being taxed at the present time four times the value of agricultural land. Surely the assessment department shouldn't have the power to sever your land and say, "This part of your land is a bush lot and this part of the land is valley land, and each of those things gets three different kinds of assessments." Surely a farm is a farm.
Recommendation 6: Bill 149 or its regulations must address such inequities and clarify that valley lands are exempt if they are conservation lands or assessed at the farm rate like all the rest of the agricultural unit.
Cumulative cost of taxes on school sites: School sites awaiting development escalate in cost by the assessment process. Typically, lands designated as school sites are not purchased by the school boards right away. In fact, they wait five to seven years, until the community is built up. Then and only then do they consider if it will be taken as a school site. At that time, the school board presumably pays market value for the site. The money they use, obviously, comes from the taxpayer.
Why do the assessment and taxes on a school site accumulate for five to 10 years, only to have the school board pay more money for the land? This isn't a complete presentation but only one suggestion. Why wouldn't school sites be deemed as city parkland as the community is developing and forgiven their taxes because it's on the municipal side of things? Then when it's time to build the school at least the land values would have been preserved at the lower rate. The savings could be savings to the taxpayers of Ontario through lower land costs for school sites.
I would like to have put in a paragraph on farm tax rebate; if I was the mayor of Caledon, I likely would have. I don't know what's going to happen with farm tax rebate. If it happens that the new reassessment will give a municipality more money and they can easily pay for the farm tax rebate, then the government can rest easy. But if the reassessment doesn't change the revenue stream for your residential taxes and it's an add-on and each municipality has to come up with some money to pay for the farm tax rebate, you'll find another major bone of contention that I could have speculated on. But because I don't have that information and only the provincial revenue and finance department has that information, I hesitate to venture in. But maybe you members who are close to the Ministry of Finance could find that out for yourselves, particularly if you have a community that has some farms in it.
In conclusion, I'll go back to the major point I came for, but I think all the other points are valid. The first principle is that farm land awaiting development was assessed, valued and taxed as a farming unit until the farming activity ceased or until building on the land commenced. In areas where lands are zoned and held in an inventory awaiting development, this historical practice in Ontario should continue.
In order for the GTA, indeed all of Ontario, to remain competitive, both industrial and commercial sectors must have the incentive to zone and get their lands ready for market. All municipalities in Ontario should be prepared to wait to derive their significant tax revenues from the actual construction of new buildings and the jobs that come out of it. The trigger for escalating the assessment and taxes should be the building-permit stage. Thank you for listening to me.
The Chair: Thank you very much, Mayor Robertson. We have approximately 11 minutes left. I will go to Mr Phillips of the Liberal Party first.
Mr Phillips: Thank you for a good presentation, Mr Mayor. What is the motive behind the government here? Yesterday the Urban Development Institute was in, and literally dozens of mayors have written indicating their lack of support for what's proposed in the bill. What's your understanding of why the government wants to proceed with this?
Mr Robertson: I'm not a soothsayer, and I don't know, but I can tell you what I think. I think the government is definitely well meaning. I know the government's plan is to try to create jobs and stimulate the economy. But they've inherited a very large bureaucracy, and up until now they have been letting that bureaucracy tell them what the blueprint should be, what the rollout should be for all the different bills.
The finance department had the great idea of pooling the 905 taxes. That didn't come from any particular politician that I know of. It's a hatched-in-house idea. In theory, it might sound good, but when you get out on the hustings and you say, "Does this make sense? Do we want to double the price of land simply because of a taxation change?" hopefully your party, the Conservative Party and the NDP will say, "Look, no matter what our party is, this isn't good for Ontario."
Let's admit at this time that some advice we got isn't right, listen to UDI, the guys who are trying to make this society turn around, and listen to a few mayors instead of listening to the bureaucrats at Queen's Park. Just give us a chance.
Mr Phillips: I think you made a good point, in fact an excellent point. We talked yesterday about the fact that future jobs will depend on businesses being prepared to invest capital investment for plants. Certainly our auto sector, which is a big part of your economy, has invested heavily in Ontario in plants. You need the land to do that. I think we do have to listen carefully to the concerns you're raising as we look down the road. Every business now has the choice of locating here, Kentucky, California or Michigan. So I hope the government is listening to your concerns.
Mr Robertson: I do too, Gerry. Can I just talk about the Bramalea assembly plant, the Chrysler plant? It's a three-million-square-foot building, with 3,000 workers there. Around that land -- it's called Bramalea II Business Park -- there were 500 acres of farm land, zoned and registered as industrial land. If Bramalea could have sold it at the time, they would have, and they wouldn't have gone bankrupt. Those 500 acres sat there, and they eventually sold, one after the other, to businesses that are now coming to my city.
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Can you imagine what would have happened if this legislation was in place? That land would have doubled, doubled, doubled. Then, when someone said, "I want to move beside the Chrysler plant," they would have looked at the price of the land and instead of saying, "Oh, I can pick up this land for $120,000 an acre" or $150,000 an acre, that price would have been out of sight, and we wouldn't be able to proudly sit here today and say that those 500 acres have all sold. They're not all built on, but thank the Lord that they are all sold. The land immediately south of the Chrysler plant is under construction with a one-million-square-foot building. Nabisco Brands are going to have a warehouse there. Their plan is to build another 200 million square feet. It's unbelievable. But if we don't let that incentive stay in Ontario, we're going to strangle ourselves.
Mr Grimmett: This is sort of a continuation of a discussion we've had with a couple of other presenters. We heard from the Urban Development Institute yesterday, and this morning I had an interesting exchange with Mr King from the Orlando Corp along very similar lines. I don't want to continue that, because I think I got my answer when I suggested that there was logic in this. There is logic in it. But the argument you and the other people have made is that the theory of value isn't the same as the practice of developing land.
Mr Robertson: Exactly.
Mr Grimmett: So I understand your argument. When we heard from the Association of Municipalities of Ontario, this issue was not raised. Is that because there is a difference among municipalities?
Mr Robertson: I don't think so. I think at the municipal level we're so bombarded by change that we can hardly sleep at night for trying to read and keep up to date. This paper was written last night between about 8 o'clock and 11 o'clock. It was proofread by my treasurer today, and it was delivered to me at 12 o'clock at the board of trade. We're running like hell just trying to understand what you guys are doing and why you're doing it so fast and why we're going to be asked to pay for the services of Metropolitan Toronto when we have one half of the employees. We've got one half of the employees of Metropolitan Toronto. We are lean. We're competitive. We're being bludgeoned. You're saying, "Oh, it's okay, you pay for those suckers and don't worry if they ever become efficient."
Mr Grimmett: Do you know what AMO's position is on this issue?
Mr Robertson: No, I don't.
Mr Grimmett: Can I ask you whether you have any suggestions on how the fair sharing of payments in lieu could be structured.
Mr Robertson: I'm not an expert, but I think we should just say that they should be distributed within a region so that the school board and the region share in it like any other revenue stream. Why should someone, by luck, have an international airport in their midst and for years get a gift of $11 million a year? I could tell everybody in the world that we're debt-free. Couldn't you if you got a gift of $11 million a year? In fact, you could give every taxpayer a deduction of 3% every year with that money, if you wanted to, instead of socking it in the bank.
Mr Pouliot: Welcome, Mr Robertson. You started your remarks anecdotally by mentioning -- and yours is a sad story this morning -- that your wife is out of town and you were left without any money.
Mr Robertson: I had a $20 bill.
Mr Pouliot: You had $20. My wife is in town, she flew in, and I am left without any money, your worship.
Mr Robertson: Can I lend you some?
Mr Pouliot: But it's not her fault. I look in the mirror. I'll take that back, because I do more than my share of spending; she's much more qualified to handle money than I am. But I remember the days when $20 was an immense sum. Then I bought Bre-X, but I won't bore you with that.
Your worship, from what you know now, will municipal taxes -- residential, commercial and industrial -- in Brampton, by virtue of the downloading, go up in 1998?
Mr Robertson: We don't know. Here's what we do know: We know, from the figures the province has sent us, that the average residential tax will go up $276. But Mr Harris said, "Don't worry; they won't." If we take his promise literally, he's going to hand us a cheque. It's going to be a new municipal transition or municipal subsidy grant. We thought we were getting out of the grant business. We have weaned ourselves off of $11.5 million of grants, including transportation grants that you used to send us. We're out of that business now. We're delighted to say that at last we're self-sufficient. Then what happens? We're being told, "Oh, no, you've got to pay for Metro and their inefficiencies, but we're going to give you" -- or is he going to give us a grant? Is it going to be a transitional grant? Is this grant going to be squeezed out in three years so that the tax bill next year won't be $270 more, it will only be three years from now; the year 2000 is when the penny drops. We don't know. I'm the mayor of a community of almost 300,000, and I don't know.
Mr Pouliot: I'm a little confused, because I heard the Premier promise a 5% to 10% cut in taxes from here until the year 2000; if you were to get leaner, if you were to organize your boutique, you should be able to pass along a 5% to 10% tax decrease to the citizens you represent. I guess it's better said by others when it comes to you.
I want to go back and focus on your presentation. You're telling us, from what you know, your worship, that taxes should go up in one year by $276.
Mr Robertson: Yes, sir, on average.
Mr Pouliot: Yet, in the same vein, you are willing to forgo revenue because you see fairness in your proposal and you also see the bigger picture.
Mr Robertson: I hope so.
Mr Pouliot: I think this is an act of courage, and I say this by way of observation.
The Chair: Could you wrap up, please.
Mr Pouliot: Yes. Yesterday, the day before, it's becoming a caravan of solicitors. We have developers -- it's expected and why not? They put their best foot forward. But more and more, except for one, we have people like you, who are standing up and saying that what is being done here is wrong, it doesn't serve the purpose, it deters revenue; wait for the building permit. I haven't heard any contrary argument to say, "Keep on being a farm." Of course, you're not a farm if you're a condominium, but it's at that stage only. I welcome your presentation very much, and I agree with you.
The Chair: Mayor Robertson, thank you very much for coming today and thank you for your excellent presentation.
Mr Robertson: I hope I am heard. I won't give up on this issue or the next issue. Somebody has got to listen sooner or later.
The Chair: There will be a recess until 3 pm.
The committee recessed from 1430 to 1505.
CONFEDERATION OF RESIDENT AND RATEPAYER ASSOCIATIONS
The Chair: We continue with our public hearings. Appearing before us now is David Vallance representing the Confederation of Resident and Ratepayer Associations. You have half an hour to use as you wish. If you would like to leave time for questions, I will divide the time evenly between the caucuses. Identify yourself for the record please, and then start.
Mr David Vallance: My name is David Vallance. I am chair of the Confederation of Resident Taxpayer and Ratepayer Associations, which is the group I guess I'm appearing for today. When I first heard about this, I was going to pass it up because I thought it wasn't relevant. But then, on reflection, going back to 1991 when market value assessment was the big issue in Toronto, I was in this Legislature on several occasions to make a presentation myself and to listen to others. At that time I made a presentation that got the longest time before the committee except for the railways. I was here for the presentation that the railways made, and I was appalled at what the tax system was going to do to them. I suspect, although I can't ever find out for sure, that it was the railways that stopped market value assessment from being imposed on Metro at that time, a reassessment and a market value update. For that I am grateful, because I was intimately involved with a business organization, and I know that most businesses would have been put out business in a few months.
What I find interesting about the result of all that is that I must congratulate this government, which is something I haven't done very often in the last year, for the approach it has taken to the treatment of pipelines and railways. The proposal, as I understand it -- I haven't read it in detail; I've only looked it over in glances -- and from what I've heard from other people, what you're using is essentially a unit assessment system, which was my preferred assessment system for all property in 1991.
Railways and pipelines receive nothing of service or benefit to the municipality. They cost them very little, except to the extent that they interrupt the transportation systems and there's a cost to building around those services, and it made no sense to me that they should be taxed at the same rate as the property adjoining them, so to that extent, I think the government has made a wise decision in taxing them on the amount of land they're actually using and assessing a value or a cost for that privilege.
That leads me to another point, and that point really is why, if this is so good for the railways, could it not apply to other properties? The problem right now with the assessment system is the same as the problem then, and the problem for the railways then was that the assessment system was setting a tax policy for the railways. That's the wrong way to go about it. The government has taken that over and said, "We're going to let you assess the property based on the amount of area you cover, and we're going to set a tax policy for that area."
I suggest to you that's the way you should deal with the properties within any municipality or county in Ontario. You provide an assessment number, and I suggest that value is a totally wrong thing because it's constantly fluctuating, it's constantly shifting, and that constant fluctuation and constant shifting creates enormous turmoil for the people involved, just as it did for the railways in 1991. I don't understand why it's so difficult to understand that. If you gave the municipalities the power and the right to design a tax system based around the size and the area of the lands and buildings occupying the properties within the municipality and then let them come up with a system for taxing those properties so that they could generate enough revenue to pay the costs of operating the municipality, I think you would come up with a far better result in the long run. This has happened in Israel where a unit assessment system is in place and the municipalities are required to come up with a taxing system based on the area of the property and the building on that property. Apparently it works very well, and they're looking for a long, stable system.
Why should you do this? Market value assessment is practically universally hated. Some 30% of the United States has come off regular market value updates for their property assessment. California, Oregon, Idaho and a couple others -- I can't remember them -- 30% of the total population in the United States has voted by referenda or ballot on a proposition, as in proposition 13 in California, to come off regularly updated market value assessments. If the province would move in that direction, you would save yourselves a whole lot of headaches, because I don't know if you understand it or not, but the assessment office is saying you're going to be facing 900,000 appeals after the assessment hits the books next year. I have heard that number from two different sources, both of them intimately acquainted with the assessment department.
If you're looking at 900,000 appeals, all this is is a bonanza for the lawyers and the appeal firms, and that's a very unproductive use of our resources. All the businesses and all the people involved in those appeals are going to be sidetracked from their regular daily business. The cost is well beyond the actual cost of the appeal. The loss of business revenue, the loss of time, the loss of energy and the disruption to businesses are probably going to cost the economy a few points, and that's a very sad way to go.
Since the government has seen fit to change the system for the railways in the right direction, would it be prepared to consider at least giving the municipalities an option to design a tax system for themselves in different cities? Cities attract people for a number of reasons, employment opportunities and by virtue of where they are born, but another thing is the style of life, the quality of life and so on, and it's those differences between cities that make them attractive. They also create all sorts of different opportunities for creative ways to develop things, to raise money, to create land use, and this is part and parcel of the municipality's operation. I'm just suggesting that you should allow the municipality the right to design a tax system that works in their municipality, that is not in constant fluctuation, and I think that is about all I have to remark on.
The Chair: We have approximately 23 minutes left, and I will begin with the government caucus.
Mr Grimmett: Thank you, Mr Vallance, for your presentation. You advocate that a municipality could be told by the province, "Go ahead and set your own assessment system"?
Mr Vallance: No. I'm suggesting that the assessment could be done by the province, but the numbers be given to the municipality to set a tax system that works in that municipality. There are different ways of doing that, and we can go into some of those ways if you'd like. There is all sorts of creativity out there, and different municipalities have done different things with user fees, for example. Up where I have a cottage, there's a user fee of $45 for my garbage -- that's not a user fee; that's just a flat tax. By using flat taxes, you can stabilize some of the fluctuations inherent in the market value system, particularly a regularly updated system.
Ontario doesn't have a regularly updated system in most of the province. I think 60% of the province hasn't had a market value reassessment since 1960 -- it may be on market value, but it's not on a regular update. There are 16 years of changes to be incorporated in the assessment that's being done as of last August, and that's going to create tremendous pain and turmoil for a lot of people.
Mr Grimmett: Having practised law in a small town and taken a number of market value appeals myself, you are certainly identifying some of the practical problems that exist for the market value system, but we as a government have made the decision to proceed with a unified system throughout the province in order to try to attain equity, so that a taxpayer or a business or a resident will know that they are going to be subject to the same rules whether they are in Kenora or eastern Ontario. That is in keeping with the theory that we don't want municipalities tailoring their assessment systems or their tax systems to attract investment or to punish businesses. I think I would have some of those concerns with your suggestion that there could be this patchwork tax system in each municipality. Don't you see some problems with that suggestion?
Mr Vallance: Not really; in fact, quite the opposite. Russia had a unified system. Everything was done from the central command, and look what happened. I think the same thing is possible here. You cannot tell me from Kenora how the property tax system should work in Toronto. Kenora doesn't have the same density, it doesn't have the same mass of population and it doesn't have the same infrastructure to support and maintain, so the tax system that works in Kenora may not necessarily work in Toronto.
Also, when you say it's a unified tax system, and I think this is where your problem will be, downtowns all across Ontario, not just in Toronto, in Stratford, in Barrie, in London, in Simcoe, tend to have a higher value than the properties at the edge of the city -- that's almost universal -- and yet those downtowns are the most efficient part of the municipality. They're being penalized for their efficiency to support the inefficient extremities of the municipality, and that's creating the urban sprawl that is costing us a fortune. When I say that, I do it having just read a report that came from California, where the Bank of America said that urban sprawl in California is probably hurting the economy in California by two or three points. That's from the Bank of America. So that sprawl is recognized, and the market value assessment system just encourages that by penalizing the central core to the benefit of the extremities. That's the problem with the unified system, as you call it. It's not unified at all. You're basing it not on the costs of the property to the municipality; you're basing it on something that is fluctuating constantly.
North Bay, which is Mr Harris's home town, I'm told is just dying to get a reassessment, and you know why? Because in 1980 when it was reassessed, all the downtown properties were hit with high values, so they created a whole lot of strip malls. Those strip malls are now facing dramatic increases in their assessments, and their taxes are going to double and triple, and downtown is going to go down. Is that some way to run a municipality? That's central planning. Let the municipality cope with those problems; don't try and do it from Toronto. God, I wouldn't want to be designing a tax system for North Bay with strip malls a mile and a half from the downtown. I live downtown. I like the downtown. I want to maintain it, and I don't want to subsidize something that is expensive to maintain and operate from the centre.
Mr Pouliot: A real pleasure, Mr Vallance. With respect, I'm wrong so often, but philosophically I maybe agree to disagree. I'm constantly torn between what constitutes the responsibility of relative wealth vis-à-vis society. On the one hand, I favour a broader assessment by way of a sales tax or by way of the dreadful, much maligned GST, where you exchange directly at the marketplace. On the other hand, our society judges wealth by shelter, and in the extreme, I wonder if Bill Gates, if there is such a thing as property tax, should pay more taxes than Ms Jones with Fluffy the cat who occupies a partly subsidized apartment. They're both home, but one's wealth is being recognized by way of a contribution to society.
The railroads: It is my understanding that the rights of way will be designated, will be spread over nine regions, and a fee per acre will be not only suggested but put forth by the government. But once you move from non-rights-of-way, properties owned by the railways will continue to be assessed in their current manner; only assessment might change. They're happy with the rights of way, although they are speculating they don't know what the price per acre will be. But they seem to be, grosso modo, tacitly in favour, in anticipation.
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Some of us have only been here 13 years, but I can assure you that I can count and welcome the opportunity to meet with CN and CP. When I was at transportation, and later at northern development and mines, those opportunities multiplied themselves. They are very good lobbyists. It can never be said that lobbying, with the railroad companies in this country, is a vulgar trade. They have elevated from a trade to the most honourable of professions.
The fact is, when all is said and done, they don't pay very much tax, thank you; they really don't. Historically they were given huge tracts of land. Those entities were protected. They became cartels and monopolies by virtue of federal statute, first east-west, and then they availed themselves of every trick in the book, and rightly so, to go from east-west to north-south, and today they compete with themselves.
At one time, CPR had enough cash flow to establish the largest truck company in Canada, and they would come to the table and say: "We can't compete with trucking. They now have door-to-door delivery, just-in-time delivery. What are we to do?" CNR knows Delaware better than you and I, Mr Vallance, will ever have a chance to, because it invested. They move goods to market, and they have done very well, and we want to wish them well. They still have the inside track when it comes to shortline operators. They don't like unions because they restrict their ability to unload what is no longer profitable to piecemeal to shortlines because of successor rights, so they threaten to abandon. If they don't think it's as lucrative, they'll even remove the track so they won't have to pay. So I have admiration, but as a politician, little sympathy for the overall scheme of the railroads. They have done very well. I want to wish them well, but they don't do very well at pleading the poverty game.
Every third presenter is unique. Every presenter stresses fairness. The thing is, unless we can come up with a better mousetrap, it is very difficult for the province to give the municipality the tools and yet to dictate what brand they will use. Property assessment might not be the best way of arriving at for the purpose of, but unless we come up with something else, it has worked relatively well. If you haven't been assessed for 40 years and you live in Forest Hill and you send three widows as presenters and they say they will be impacted, that they cannot maintain the house, I don't have the ability to come with six widows from a lesser tenement who have been subsidizing. Is this fairness? I don't know what is, but I suspect unless we come up with a way to address all that, and keeping in mind that we need the revenue, maybe the system as is is not perfect, we know that, is better than anything else that is being put forth.
How are you doing, David? Downtown Toronto: Would you be able to survive?
Mr Vallance: My turn?
Mr Pouliot: Yes.
Mr Vallance: There are a number of issues here. One is your argument about the railways. Whether they got the grants in the past or not is quite irrelevant to the taxes they should be paying for the rights of way. The taxes, as I understand it, are to be collected for municipal or school uses, which is what everybody else living in the municipality is for. Is that not so? If that's the case, then I'm only referring to that.
If you're upset about the grants that CN and CP got 50 or 100 years ago, that's a separate issue from this. As far as the rest of their properties, presumably the rest of their properties in some way are receiving a service or a benefit apart from just passing through the city, and they should probably be taxed in a different way.
My point really was that regardless of how you tax the railways, what upset them in 1991 was the fact that they were moving from something that they had been dealing with for umpteen years to a brand-new system. If we had, every year, to deal with an income tax system that changed the scales, changed the rates of tax, changed the exemptions, changed everything in the whole system on a pretty arbitrary basis, we'd go nuts, and that's the problem with the property tax system for everybody, including the railways, at this point. That's why 30% of the US has moved off regular updates for their market value, not because people don't want to pay their fair share of property taxes, not because they're paying too much property tax in many cases. In fact, I think it was in Oregon the vote was, "Would you like to go with an acquisition value tax, which means if you buy a new property, you will pay tax based on that value?" They said: "No. The gains from that are not worth the chance that in a few years we'll be in another position." What we're looking for is stability, and that's really what we're talking about here.
As far as fairness is concerned, the example of Bill Gates and the widows is quite irrelevant. Let's talk about the house in Rosedale and the house in Parkdale.
Mr Phillips: You raise a very interesting point in that the bill says the fair assessment system bases the assessment of all properties in Ontario on current values, but as you have quite rightly pointed out, for Hydro and for rail rights of way and for other utility rights of way, it has nothing to do with the value of the land, zero. The government is simply going to say, "We're going to set how much these organizations are going to pay in property taxes, and we're going to allocate it on the basis of acreage," so as I keep saying to ourselves, an acre of land for CP Rail in downtown Toronto, down on the Gardiner, will pay exactly the same rate as an acre of land up in Pefferlaw for CP Rail. If CP Rail has an acre of land in Pefferlaw, they will pay the same tax per acre as they pay in downtown Toronto. It has nothing to do with market value, it has nothing to do with the value of the land; it's all some mysterious stroke of the pen in the Premier's office that will determine those taxes. So I think you quite correctly say, "If it makes sense to allocate property tax on the basis of acres for the rail lands, why not property tax on the size of the house?" I think that's your point.
Mr Vallance: There are two parts to it. That's partly right.
Mr Phillips: Have I missed your point? You were saying that what the government has done here for the rails is essentially unit value assessment of some sort.
Mr Vallance: Unit assessment, not unit value, and that's really the difference. There's no value attached to it. Do you want me to respond?
Mr Phillips: Sure.
Mr Vallance: Quite simply, I think it's a mistake if an acre of railway land in Pefferlaw is paying the same as an acre of railway land in downtown Toronto.
Mr Phillips: That's what it is.
Mr Vallance: That's the issue I'm talking about. The railway land in Toronto is paying right now taxes -- I presume they're taxes -- to the city of Toronto for those rights of way. Is that correct?
Mr Phillips: Yes.
Mr Vallance: That railway land in Toronto that's going to be based on this assessment, that number should then be given to the city of Toronto and the city of Toronto should say, "How much money do you have to raise from this?" or "How much money can you raise from this land and what will your rate be?" You give the assessment that the province does for that land, based on the area, to the municipality, and you do the same thing in Pefferlaw, because it's patently obvious to me that the railway should be paying more for the use of the land in downtown Toronto.
Mr Phillips: But that's not what the bill says.
Mr Vallance: Then the bill is wrong to that extent, and that comes to my very point. The assessment system and the taxation should be separate. The problem right now is we're having our taxes set by the assessors and that's the wrong way to go about it. You should have an assessment that's uniform and let the municipality set the tax, based on criteria, based on rules and regulations, and you'll come up with a whole lot of creative ideas across the whole province. Not everything will be the same, but you'll get a lot of wonderful ideas that will work. The cities and the people living in them will have to accept them, because the politicians, if they don't do it right, will get kicked out.
Mr Phillips: Has your organization looked at the plan by the government to set property taxes by minister's regulation? The government now will be --
Mr Vallance: You mean the Russian system?
Mr Phillips: The government now will be setting for businesses over half the business property taxes.
Mr Vallance: That's the Russian system.
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Mr Phillips: I wouldn't mind your comment on your organization's view, but on the residential property tax there won't be any --
Mr Vallance: The residential property tax, as I understand it, is being left to the municipality.
Mr Phillips: No, no. The province is going to, by regulation, set more than a quarter of your property tax by regulation.
Mr Vallance: The school tax.
Mr Phillips: Half of your old school tax will be set not by the Legislature, by the way -- we'll never see it; we won't debate it. The only time we'll find out about it is on a Saturday, as you know, when the Gazette comes out and we'll flip to the back of it, "Property taxes this year" -- the $6 billion or whatever it is, $6.5 billion -- "the Premier has decided will be raised in this fashion." Has your organization looked at that, and do you have any comment for us on whether that's an appropriate way for a government to work?
Mr Vallance: We haven't looked at that specifically because we haven't been meeting on that particular issue, but based on the history of the organization and my tenure there, I would say that my comment is it's a Russian system and it's totally wrong. You cannot do central planning. The creativity of the people in the province is being stifled by doing that type of thing, and you're going to get the person in Kirkland Lake paying the same tax based on the value. The problem is that the property in Kirkland Lake is costing several times as much for the municipality to operate as it is in downtown Toronto where you've got 15-foot lots that are worth the same as a half acre or an acre of land in Kirkland Lake.
Toronto generates more in property tax revenue per square kilometre from its residential properties alone than any other municipality in Metro, and by extension the province, does from all tax revenues. The residential properties in Toronto pay more per square kilometre. We create enormous sums of money to deal with city issues right from residential property taxes.
Mr Phillips: Has your organization looked at the shifting of property taxes from apartments to single-family residences? I think most people who have looked at it realize apartments are paying a disproportionate share, but the government has decided to shift about $300 million of property tax off apartments and on to single-family residences.
Mr Vallance: Across the province?
Mr Phillips: That's across the province, yes. I don't have the number for Metro, although I'd like to get it, but it's quite a dramatic shift.
Mr Vallance: Yes.
Mr Phillips: Certainly I'm pleased for the apartment dwellers, although I'm not at all sure they'll ever see it, but it will mean about a $300-million brand-new cost the province will be putting on single-family residences.
Mr Vallance: I have to be careful here, because I can't answer for the organization. The organization would say that there should be no shifting. I think that's quite obvious from the past experience.
I have done a lot of research in this area, and I know what apartments pay in Toronto and I know what houses pay in Toronto. Apartments pay on average slightly less than single-family dwellings in Toronto, and if you look at the whole west end where you've got 13- and 14-foot lots and 50- and 70-year-old dilapidated houses on them and compare them with some apartments, maybe it's not too far apart. Maybe they're not too far out from what they should be paying, not based on value but based on the services received. Personally, I can see the need for some shift but not on the basis that you're doing it, not by regulation. That should be a local municipal decision, and the taxpayers in each municipality should be able to have some input on what actually happens. I afraid that's the way I see it.
The Chair: Thank you, Mr Vallance, for coming today. We appreciated your very interesting presentation.
GREATER TORONTO HOME BUILDERS' ASSOCIATION
The Chair: Could the representative from the Greater Toronto Home Builders' Association come forward please. You have half an hour to use as you wish. If you would like to leave time for questions, I'll divide it evenly among the three parties. Identify yourself for the record please, and go ahead.
Mr Vince Brescia: Thank you, Chair and committee members. Good afternoon. My name is Vince Brescia, and I am here representing the Greater Toronto Home Builders' Association.
The GTHBA is the voice of the residential construction industry in the greater Toronto area. We represent residential home builders and developers, whether they build single detached, semis, town homes, condominium apartments or develop the land needed for these. We also represent the infill and custom home builder, as well as the professional renovation contractor. Our membership includes the suppliers to the industry: brick manufacturers, window and door manufacturers etc. We also represent subcontractors, whether it's bricklaying, carpentry, drywall etc. Also, we represent many service and professional firms associated with the industry. All told, we have more than 850 member companies and are very proud of the fact that we have been providing services to our members and the public since 1921.
Last year, our members sold more than 20,000 new homes, representing more than 55,000 person-years of employment. That is the equivalent of 55,000 full-time jobs for one year. This year, our job creation numbers promise to be significantly higher, as our industry has been responsible for a rather large proportion of the new jobs created in Ontario in the past year.
In my review of the employment creation numbers that the province produces, the construction industry has been responsible for all the job creation industries, I believe, in Ontario, the last time I checked. Some industries are contracting, so the net growth in jobs that you see is because of the rather large level of growth in some industries, construction being one of them. Our industry has an enormous impact on the Ontario economy, and as such there are thousands of businesses and workers who have a stake in the legislation we are discussing today.
The GTHBA has been generally supportive of the government's efforts to improve fairness in the property tax system across Ontario. While we did express some reservations about the first bill -- one example being the lack of a perhaps more concerted effort by the province to reduce the unfairly high tax burden on the poorest members of society, renters, which we were just discussing a moment ago -- on the whole we were supportive of the government's efforts to tackle this tough issue.
However, I am here today to tell you that our association has serious concerns about the government's follow-up piece of legislation, Bill 149. In particular, our industry is directly impacted by those provisions of Bill 149 which relate to the taxation of farm land pending development.
Before I talk about Bill 149 and its impacts, I would like to talk a bit about the history of the assessment of farm land in order to set the context for this discussion.
Back in 1955, the Assessment Act was amended such that lands used for farming purposes were assessed solely on their value as farm lands, with no consideration given to the value of land sold in the vicinity. The purpose of this amendment was to protect farmers against large tax increases as development occurred around them, which might force them to abandon farming and urbanize their lands.
Over the years, the protection to farm lands provided by this amendment has been both broadened by the Legislature and clarified in the courts. The intention of the Legislature in this regard is perhaps best summarized in a 1981 decision of the Ontario Municipal Board, which states:
"The board agrees that the sole intent of the Legislature is to assist farmers in continuing to farm land despite the pressures to sell land, which would be particularly aggravated if their taxes were raised to the rate which would be paid if the lands were not being utilized for farm purposes. It is the belief of this panel of the Board that those purchasing lands with the intent of subdividing are thereby also encouraged to keep land in food production as long as possible."
For the last 40 years, provincial legislation has provided this protection to farmers and ensured that lands in the development process continue to be used productively until such time as they are actually needed for development.
Bill 149 and its associated regulations alter the legislative framework which has governed farm land in the development process, and this could have significant consequences for our industry and the economy generally.
Bill 149 provides for the creation of three subclasses of real property for farm land in the development process for each of residential, multi-residential, commercial and industrial property. Previously, no such subclasses existed, and farm land was simply assessed and taxed as farm land as long as farming activity continued.
The bill provides trigger points for increasing tax rates on farm land at the following stages of development: at the draft plan approval stage; at the registration of subdivision stage; and at the issuance of building permit stage. At these trigger points, the province establishes a minimum tax rate of 25%, and provides upper-tier municipalities with the discretion to raise the tax burden to 50%, 75% and 100%, respectively, for each of these stages of development I mentioned earlier.
Preliminary estimates by our association, based on discussions with a number of members, suggest that the new policy will lead to percentage tax increases that are in the thousands. One of the things that is most surprising about this policy, besides the massive increase numbers, is the fact that it would come from a government that has made a point of emphasizing tax cuts and job creation. This policy most certainly does not conform with these objectives, and in fact flies in the face of these objectives. It also runs counter to the government's own planning policies that require municipalities to maintain an adequate supply of designated and draft approved land for development.
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One might expect a number of impacts of this new policy, and I'll outline a few of them, as follows:
The incentive to farm land which is in the development process will be reduced.
A reduction in jobs and other economic stimulation associated with the agricultural use of this land.
Higher land and subsequently housing costs, for a number of reasons, both because of increased taxes applied to the land and because there will be a reduced supply of land as people change their behaviour to avoid higher levels of taxation by receiving draft approval.
There will also be an increase in the number of "eyesore" vacant lands. They will crop, up as people will be less inclined to farm their land in the development process.
Existing firms might actually reduce their expansion potential by divesting themselves of lands which neighbour their industrial sites.
As well, there will be a reduced viability for smaller developers and builders, as they will not be able to finance the land through the development process.
Altogether, increasing shortages of land supply and increasing tax levels I expect to have a dramatic impact on housing prices for people trying to buy their first home -- housing affordability generally.
From an industry perspective, this new policy looks bad enough when you look at it in isolation. However, it gets worse when you look at it in the context of increasing taxation levels on our industry over the past 15 years.
Land transfer tax rates were raised substantially in 1985. This tax is typically applied at several stages in the development process, depending upon how many companies are involved as the land moves through the process to final sale to a homeowner. The GST was introduced in 1989, which resulted in a substantial tax increase for home buyers, even after the rebate is taken into consideration. This new tax added about three percentage points to the cost of a new home, or about $6,000 in taxes for a $200,000 home. Education development charges were also introduced in the late 1980s, which now add anywhere from $1,300 to $2,300 to the cost of a new home in the greater Toronto area. Finally, we saw a massive increase in municipal development charges in the 1990s. There has been a doubling, tripling and in some cases even a quadrupling of development charges since 1989. Municipal fees and charges on an average house in the GTA typically range from $20,000 to $30,000 today.
An estimate done a couple of years ago showed that a standard home in the city of Vaughan would be subject to over $50,000 in various taxes, levies, fees and charges by municipal, federal and provincial governments. Municipal charges amounted to about $29,000, with the province collecting about $9,000 and the federal government collecting over $12,000.
As you can see, put in this context, an increase in taxes for farm land in the development process would be only one in a series of tax increases on the housing and development industries. Yet another tax increase is not what we need to create jobs and ensure that housing remains affordable in Ontario.
I was talking about the impact our industry has had on job creation in the province in the last while. It would be unfortunate if the current policies were to reduce that impact.
In this regard, I would respectfully ask this committee to consider recommending to the government that it reiterate in the legislation a policy that taxes all land being used for farming fairly, equitably and at the same rate, regardless of what stage in the development process it is in. Put more simply, we are asking that historic taxation policies be maintained and that there be no tax increases for farm land pending development.
That's the end of my presentation. I'd like to thank you for listening, and I'd be happy to answer any questions if there are any.
The Chair: Thank you very much. We have approximately 20 minutes left, and we'll start with Mr Pouliot of the NDP.
Mr Pouliot: If there is one thing emerging from this set of public hearings this week, it is -- well, as with your presentation vis-à-vis the farm land, for many it is catalytic. You will tell us, by way of a question, do you see your land inventory as builders being jeopardized?
Mr Brescia: Absolutely. The builders I have talked to have said unequivocally that they will avoid getting draft approval for their land for as long as is possible as a result of the new policy. This, of course, will have quite dramatic impacts on land supply. We know how the market can work at some points, where there can be sudden increases in demand; we could see huge spikes in prices and some unfortunate things happening, because people will be behaving quite differently. They won't naturally prepare for development and keep a ready supply of land; they will hold it back as long as they can in order to avoid getting an increase in taxes.
Mr Pouliot: I trust that on this issue the government might find it difficult to help people -- both heading in the same direction, both strong believers in job growth, "Ontario open for business," all the right clichés, and they mean it. Yet when you look at the big picture, if you leave things as such, experts and other people in the field, like yourself, are saying: "No, no. If you mean what you say, it's more expedient, we can achieve those goals better, by leaving the system as is. We have no opposition. Once we play our final card, then you can go to the right assessment. We realize there has to be a change then. But in the meantime, let us be."
On your development charges, you paint a rather appalling state of affairs, which leads me to ask -- I'm a little bashful about asking you, but I will do it anyway.
Mr Brescia: Please.
Mr Pouliot: You have immunity here, sir. Do you feel that in some municipalities, development charges got away on them and they saw it as an opportunity to -- another tax?
Mr Brescia: I would tend to agree that there has been a perception in our industry, and I recognize that this has certainly been an issue of debate between us and the municipalities. We were quite concerned with the massive growth in these charges. Quadrupling is what happened in many municipalities in the GTA over a very short time, during the recession, in fact, to a level which is the highest in North America. Our belief is that yes, there is perhaps a little gold-plating, that things cost more than they should have, that there are less costly ways to do things than were chosen.
Mr Pouliot: I was hoping you wouldn't say -- in fact, I almost said notwithstanding the gold-plated. We use "gold-plated" so easily. What I see is an ordinary library. When I buy a house, I buy the library, a little of it. I buy location, the lifestyle, if you wish. I buy the park. Gold-plated? Municipality leaders and others are saying it is not. I mean, this is no Taj Mahal; this is the way we do things in a civilized society. The trees belong to everyone. We don't want your "eyesore," so people building a new subdivision should be asked to contribute. You're asking that the lid is kept on it, that it not be out of control. With respect, I fail to see the gold-plated. To me, gold-plated represents something else.
Mr Brescia: Well, we may agree to disagree on this issue. I doubt I would sway you. But there certainly are ways you can do development which are quite attractive, which are subtle but do reduce costs. Drive through Ancaster some time. You don't see the curbs. You see a development that was done a long time ago which is quite attractive, a nice place to live. It costs less to do, and there are things like that that we'd like to see which we think don't necessarily detract from the beauty of a municipality.
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Mr Phillips: I think there's a lot of evidence that the government has made a mistake on the bill, for whatever reason; I don't know, but there's some speculation. We've heard from most municipal leaders that they don't think the way the bill is proposed is smart, and they're the ones who stand to benefit a fair bit. The province, I must say, has become a big partner in all this. The province is getting a third of this tax revenue. I don't know whether their fine hand is behind this, because they've muscled into the property tax area in a big way. For every dollar collected, they're going to pocket a third of it. It's $6 billion worth of revenue they're getting, so they may be --
Mr Brescia: Actually, that thought hadn't crossed my mind. Far be it from me to attribute motive, but --
Mr Phillips: They have a -- what do you people call it? -- a pecuniary interest, a financial interest in the outcome of this, because they've assumed one third ownership of all property tax, which is breathtaking, in many respects. The old taxfighters have now confiscated a third of the property taxes by way of regulations. It's breathtaking. To my colleagues in the Conservative caucus, it just seems foreign to what I thought they thought, which was that this should be out in the public, in fact that we should have a referendum if we're going to take taxes up. But now, for whatever reason, Mike Harris wants authority to set a third of the property tax by regulation. It never comes before any public body; it's just that one day a piece of paper is put in front of the Premier and he signs it, says, "Get me $6 billion from those municipal people." I'm just saying that is one possibility, that the province says, "Listen, we want a third of all those dollars and we want a dramatic increase in the valuation of development lands."
Having said all that, I do think it is a mistake that even they are recognizing now, and I hope the government is coming forward with some amendments to correct it.
Mr Brescia: I certainly hope you're correct. We're hopeful.
Mr Phillips: We're dealing with the amendments on -- what's the date?
The Chair: The amendments have to be in by Tuesday at 5, and it's November 4. Is that right?
Clerk of the Committee (Ms Rosemarie Singh): The 23rd. The 4th is the clause-by-clause.
The Chair: The 4th is clause-by-clause. Is that what you're referring to?
Mr Phillips: Yes. We meet to deal with them, so you may want to come and watch the proceedings. With a single exception, municipal politicians, the industrial land developers, the home developers, have all said -- I think you make a good case, on both the industrial and residential side, that we are simply artificially driving the cost of housing up.
Mr Brescia: I think you're right. There may have been some mistake, perhaps, a perception that this policy is something municipalities wanted. I think a number of mayors have let it be known that this is not something they particularly wanted. I believe even the association that represents all economic development departments has written in to the minister suggesting that they don't support the policy.
The Chair: Excuse me. The amendments have to be in next Tuesday, which is the 28th, not the 23rd -- that's what I said previously, the 23rd -- and then the clause-by-clause is on the 4th.
Mr Phillips: For my clarification, all amendments, government amendments included, must be in by --
The Chair: The 28th at 5 o'clock, and the clause-by-clause will be held on November 4th.
Mr Grimmett: Thank you for your presentation, Mr Brescia. The concept of preserving farm land is probably a motherhood statement. I think you'd have a hard time finding people in Ontario who would say it's a bad idea. That is an interest we all share, one that the legislation has tried to deal with. In fairness, I think the current situation with assessment could be criticized as not doing that. We've heard some examples where currently, assessment departments are assessing farm land at very high figures. Are you aware of those?
Mr Brescia: Well, there's been some activity in the courts around a particular case that I'm aware of. It's been relatively isolated, from my understanding, but I'm happy to be corrected if it's more widespread.
Mr Grimmett: But is it fair to say that the development industry is not particularly happy with that situation at present?
Mr Brescia: No. Like I said, it is still in the courts, and it has to be determined what is going to be the outcome there, but it was seen as a sudden and dramatic change in assessment policy from what we were used to over the last 40 years.
Mr Grimmett: So there's a need for reform.
Mr Brescia: There might not be, depending on what happens with that particular court decision.
Mr Grimmett: What level is it at now?
Mr Brescia: I can't even recall, to tell you the truth.
Mr Grimmett: Well, we've certainly had one person here today who, under the system proposed in Bill 149, would get dramatic relief from the current system. He has had the taxes on his farm in Mississauga --
Mr Brescia: Yes, Mississauga is where there's a bit of an isolated problem, compared to the rest of the province, I believe.
Mr Grimmett: How is it isolated to Mississauga? I don't know the answer to that. I probably should, but can you help me with that?
Mr Brescia: I'm not sure I can give you the details. I'm probably the wrong person. I am aware that that is where the Amoco problem developed. I don't know who it was who --
Mr Grimmett: The gentleman who was in today, Mr Goodman, indicated that his family farm, 100 acres in Mississauga -- and it could have been in any jurisdiction, for all I know -- has gone from $3,000 annual taxes to $300,000 annual taxes. It has been zoned industrial/commercial, but it continues to be farmed. He's asking for relief from the current system.
Mr Brescia: While I can't speak to that particular person's case, what I can tell you is that in talking to virtually all of my members, I haven't had a single member say that this new proposal will give them a relief. The answer had been common from all the members I have spoken to, that it will be a rather large percentage tax increase. I'm just going by what my members have told me and the rough examples we have worked out in terms of what the impact would be. As far as our membership is aware, the vast majority of farms in the GTA are still being assessed in the old fashion, as they have been historically.
Mr Grimmett: Based on use and not on zoning.
Mr Brescia: Yes.
Mr Grimmett: As you are aware, under Bill 149, if they have not been taken to the draft plan status in development, it would allow for them to be eligible for up to a 75% decrease or rebate in their municipal taxes.
Mr Brescia: My understanding is that the relief comes after draft plan approval, not before. Before, they are assessed as farm land, as they are currently.
Mr Grimmett: That's what I mean.
Mr Brescia: But once they reach draft plan, the relief of 75%, up to 50% -- there's municipal discretion there, obviously -- still represents a rather large increase if you're a farmer holding a piece of land. You could have two farmers next door to each other, both doing the same things on their property, but one paying a dramatically higher tax rate than the other. It would make it kind of difficult for one to bring their goods to the market in competition with the neighbour.
Mr Grimmett: You have the benefit of making your point on a day when we've heard the same point from several others.
The Chair: Thank you very much, Mr Brescia, for coming here today and your interesting presentation.
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HENRY OF PELHAM FAMILY ESTATE WINERY
The Chair: Could the delegation from Henry of Pelham Family Estate Winery please come forward. Welcome, and thank you for coming. You have half an hour to use as you deem appropriate. If you do a presentation and leave extra time, I'll divide the extra time between the three parties for questions. If you could please identify yourself for the record and then go ahead.
Mr Matthew Speck: My name is Matthew Speck. I'm here representing Henry of Pelham Family Estate Winery. My current role with the winery is as our vineyard manager. I'm the vice-president of sales. I'm also a member of the family that owns and operates the winery. I'm also one of the committee members of the Ontario Grape Growers' Marketing Board, the OGGMB.
I'm just going to introduce the winery and then speak a little bit about taxation, how market value affected us. We're a midsize estate winery in the west end of St Catharines in the Niagara Peninsula. Our wine production started in 1988. Our current wine-grape vineyards were planted in 1984. The farm land that we have has been in my family for over 200 years, actually. It was originally Empire Loyalist land. It has had vineyards on and off it and mixed farming of all types, fruit farming, livestock of all types, since 1794. The vineyards were planted in 1984. It takes about four years to get a crop. Our first crop was 1988, and that's when we started the wine production. We started at about 2,500 cases. This current year, we're looking to produce somewhere between 40,000 and 42,000 cases. So we've seen very good growth. I think we're representative of what's happening in the Niagara Peninsula right now in the wine industry, especially in our category, the estate winery, premium wine industry.
We currently employ 18 full-time employees, including myself and my two brothers. We have somewhere between 10 and 20 part-time employees, depending on the time of year. Right now we're in the middle of harvest, so there are people everywhere.
Our vineyard land has increased in the last 10 years from 50 acres to just over 225 acres. So the farm part of our operation is probably the fastest growing, where we've put the most emphasis on expansion in recent years.
Another part of our operation is the agritourism component, which is extremely important to our marketing and our direct sales as well. We see somewhere around 35,000 people annually through the winery and through our retail shop and tour facility.
Our immediate plans for growth were halted a year ago when we got our new tax bill, but we're looking at, somewhere in the neighbourhood of the next four to five years, doubling our winery production. We want to be somewhere in the 60,000- to 80,000-case range and continuing to add to our vineyard holdings as well.
I think our winery is fairly typical of the growth in estate wineries in Niagara over the last five or six years. This sector is experiencing tremendous growth. It has really tremendous potential for further expansion. It's really, in our view, only starting to take place. We're sort of at the tip of the iceberg of where this industry can go. Wineries have been buying land to plant grapes, and in many cases have doubled -- or in our case, we've quadrupled our land holdings in the last four to five years.
As you can imagine, when we received an assessment notice from the region of Niagara in 1996 that raised our taxes $25,000 in one shot, we were stunned. We were also not alone. At least 10 of our neighbouring wineries received similar increases; in some cases, much worse.
This happened only in Niagara wineries. The wineries in southwestern Ontario, which had not been subject to market value assessment, had not had their taxes raised. But we were told by officials in Niagara that it was only a matter of time and that by 1998 all wineries would be stuck with a similar tax bill. In Niagara-on-the-Lake, for example, at Reif Estate Winery, which is another small, family-run winery similar to us, their taxes went from $10,000 to $40,000 in one year. They quadrupled. We were told that this huge increase was the result of changing our assessment factor from farm to industrial, even though our land remains zoned as farm land, as agriculture.
The key really lies in what this zoning means. As agricultural land, we are very limited in what type of development we can have and what we can do with our land. Our land remains agricultural, we're taxed as industrial, but our use of the land is still confined to agricultural uses, farming.
The other main thing that hits us is that there are many services. If you're going to be taxed at an industrial level, you would also like to see the services that are typically given to industrial land. Mainly in our case, it's water supply and sewage. We have to truck water in. We're out in the middle of the country, so we truck water in. We've had to build storage tanks and cisterns to hold the water. We truck it in daily. We've also had to build extensive septic systems, tile beds, to handle the sewage. All these things are very costly.
These are large expenses, but because we are largely a farm we accept these as a consequence of being on agricultural land. We are very committed to agriculture. Estate wineries, as is any premium winery around the world, are first farmers really and then wine makers second, as the vineyards are really the fundamental factor to producing quality wine. But to be taxed as though we were an industry with the services of industrial land is ridiculous and amounts to making us pay for these services twice.
The result of this change was that many wineries in Niagara immediately put expansion plans on hold. For example, Magnotta Winery bought land in Niagara-on-the-Lake with the intent of building a winery last year. That land is still sitting vacant as a result of the tax implications.
We were also planning to add to our facility this year. We were looking at basically doubling our facility and then allowing our production to grow within that. When we got looking at the costs of that, basically the increased tax bill we'd be looking at would be almost what it would cost to carry the mortgage on the additional buildings we need. Many of the buildings are simply to hold tractors and equipment which is related directly to our farming. We've already begun the expansion on our vineyard farm side, and as that increased production starts to come in, we need basically a building with tanks to hold the grapes after we process and ferment them.
Given this information, I'm sure you can understand how pleased we all were to see that the province was prepared to look at this issue seriously and to try to find a way to address the problem of value added activities on farms in the new assessment system. Bills 149 and 106 and the amendment to subsection 19(5) that was tabled with this committee do solve this problem for our wineries. As I believe the Wine Council of Ontario outlined yesterday, the amendment means that winery buildings sitting on land zoned for agriculture will have the land under the buildings assessed as farm. That will make a difference of several thousand dollars for Henry of Pelham's tax bill, and it will make a difference in our ability to expand and grow in the years to come.
As well, as I mentioned before, I represent the grape growers. I'm on the Ontario Grape Growers' Marketing Board. I can tell you that there are a number of grape growers considering starting their own wineries in the future. These growers would have been prevented from doing this by huge tax increases on their property. If this change goes through, I believe you will see many more wineries in Niagara and southwestern Ontario over the next few years.
There are many grape growers that may have a large farm operation. The danger they run is that they take this large farm and just start making a little bit of wine, and all of a sudden their barns and equipment sheds, their whole property, becomes industrial. It doesn't make sense. It's not viable. The same is true for many people in Niagara and throughout Ontario who are involved in farming and want an opportunity to expand their businesses by doing some processing of the produce from their farms. If they are required to be industries to do this, most farmers will not be able to do anything but farm on their land. That would damage the long-term survival of many farming operations in Ontario, from maple syrup producers to juice grape growers to pretty much any farm product that can have value added work done to it.
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Finally, the other major change in the assessment system, allowing assessors to come in and assess your property according to what is actually being done on the site, is very important to the wine industry. It means that our retail store, which is housed in a historic building, will be assessed as commercial rather than industrial and that the farm buildings, barns and things like that, will be assessed accordingly and not as industrial buildings. Again, this will make a large difference in our overall tax bill, and it's much more fair and appropriate for the use we're putting those buildings to.
Henry of Pelham and all the estate wineries in Niagara, almost 30 of us right now, are very pleased with the changes that are proposed to the assessment process, and we would urge you to support them in order that new estate wineries and all value added farming operations can thrive and bring a new dimension to the agricultural industry in this province.
The Chair: Thank you very much. There are approximately 19 minutes left, so for questions I'll begin with the Liberal caucus.
Mr Phillips: Thank you for your presentation. As we said to the other people who are involved in the wine industry, you're all to be commended in an industry that was kind of on its back 15 or 20 years ago and has really done a fabulous job producing a great product plus a whole bunch of other things, tours and things like that.
I think all of us were concerned that without the amendment it would be detrimental to you. I guess the industry has looked at it and is satisfied that it meets your needs. I don't think there's any reason it won't go through. I think it makes sense for everybody. I don't really have any questions. I think you're doing the right thing being here to sort of grease the skids and make sure it keeps rolling along, but there's certainly no opposition from any of the committee members, that I'm aware of, at least. I don't have any questions.
Mr Grimmett: Mr Speck, you're one of many satisfied customers we've had in today. Certainly it seems that you're in the enviable position of having a business that has a tremendous upside in the future. It's nice to see someone who is so enthusiastic about the future.
I'm told by the research people we have here with us that there are 12 bottles in a case. Is that correct?
Mr Speck: Yes, in most cases.
Mr Grimmett: So that's about 450,000 to 500,000 bottles a year that you're currently cranking out. How many people would you employ on an annual basis if you talked about person-years? If you stretched out your part-time people, how many full-time people would you employ?
Mr Speck: Probably 30-some-odd people.
Mr Grimmett: How many would you anticipate going to if you doubled your productivity, as you're talking about?
Mr Speck: A lot of our expansion is in the vineyard, which is very labour intensive, so it would at least double, I would think. With some of the winery stuff, you can realize more economies of scale at that level, but the vineyard work is still mainly done by hand. I would think you're looking at doubling.
Mr Grimmett: This is totally unrelated, but is the vineyard work done entirely by domestic employees?
Mr Speck: Yes, for us it is.
Mr Grimmett: So you're happy with Bill 149, and you think it's going to benefit the entire Niagara area as a result?
Mr Speck: Yes. I think it's a fair resolution. It would definitely benefit the area. It opens the door. I know just from talk around the coffee shop and all that, when you're with other farmers and growers, that when those types of tax increases come down the line, everyone says, "Forget it."
Mr Grimmett: You said you knew of another wine operator that did not proceed with expansion. What kind of tax increases were you looking at?
Mr Speck: I'm not sure what he was looking at. For us, our taxes were just over double. Excluding the farm, just on the piece of land the winery is on, it was more than double. In some cases, like Reif, it was four times; it quadrupled his taxes. Anyway, all the stories were somewhere in that range.
Mr Grimmett: You're an average-size operation?
Mr Speck: Yes, we'd be a midsize operation.
Mr Grimmett: What kind of a year has it been this year cropwise?
Mr Speck: This year has been great, actually; very good.
Mr Grimmett: The crop has been good.
Mr Speck: Yes, the crop is super; super-high quality.
Mr Grimmett: Thanks for coming in.
Mr Pouliot: Mr Speck, you're to be commended. You're a good-news story. It's refreshing for this committee. It has been a difficult week. The great majority of people have expressed some very serious concerns. But in your case, in the capacity of what you do, you're one of the very few winners, if there's any such thing as winners when dealing with the government. We're all happy that your needs have been addressed.
You have 225 acres. When you mentioned an expansion within the next five years to 60,000 to 80,000 cases, would that entail that you would purchase more land?
Mr Speck: We're not sure. We also buy from a lot of growers around us. We have contracts with other farmers. So we're not necessarily looking to purchase more land ourselves but to increase our dealings with other farmers around us.
Mr Pouliot: What would be the approximate cost, a ballpark figure, of an acre of land for the purpose of harvesting wine?
Mr Speck: The cost of purchasing the land is anywhere from $5,000 to $10,000. But the real cost is in developing the land to vineyard. The figure being used right now is about $12,000 to $14,000 an acre, the development cost.
Mr Pouliot: In 1984 when you planted, did you dislodge any other grapes and go with something more conducive to estate wine, or did you start from scratch?
Mr Speck: We did some of both. We ripped out a lot of the old, unviable vineyards. That has really been the trend in the industry in the last 10 years. That's why it's such a new, competitive, thriving industry: the ripping out of those old grapes. We replaced them with the European varieties.
Mr Pouliot: Very much so, indeed. The possibility for a range on the red is also expanding.
Mr Speck: Reds are really just in the last couple of years starting to take hold. It was mainly white wines that were planted originally.
Mr Pouliot: Indeed. I want to wish you well, and in what you benefit from, a fair or just tax system, if there's any such thing, I hope -- because there's a temptation to what governments sometimes see as losing by definition, because you're going back to your rightful definition, that of farm -- that there won't be any temptation to go after the buildings and to hit you on the industrial side. I'm very pleased, and I want to commend you and thank you for taking the time. It's a busy time of year for you.
The Chair: Thank you very much for coming in and for your interesting presentation.
The committee stands adjourned until tomorrow morning at 9 o'clock.
The committee adjourned at 1619.