Are Calgary taxes out of control? The 'dark math' of property taxes explained
How it's calculated, why rates fluctuate each year and why businesses pay 3.5 times more than homeowners
Calgary has some of the lowest property tax rates in the country, yet many residents and businesses complain their tax bills are out of control.
Those two statements are not as paradoxical as they seem.
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In fact, the tax rate could go down and it could still result in a spike in what you owe to the city.
Conversely, the rate could increase, but your bill could drop or stay the same. That's because it works like this:
Tax rate X property value assessment = your tax bill
If your home value goes up dramatically, it can offset a cut to the rate — as seen in 2014 and 2015, when the city's residential property tax rates dropped 1.3 per cent and 5.5 per cent, respectively. The median tax bill still went up.
Here's a breakdown of how municipal residential property taxes have changed since the last civic election:
Why is the rate different every year?
The tax rate fluctuates yearly to meet the city's spending needs, which have been growing at a rate faster than inflation. But unlike other levels of government — provincial or federal — the City of Calgary cannot run deficits. It must balance its budget every year, as mandated by the Municipal Government Act.
"The origin of that is the Great Depression," says Ron Kneebone, economist with the University of Calgary's School of Public Policy.
"A lot of cities got in trouble — got broke — and the provinces had to bail them out," he explains. "After that, provinces in Canada said, 'That's not going to happen again.'"
Municipalities rely on two main sources of revenue: property taxes and user fees. Calgary, and Alberta cities in general, tend to weigh more heavily on user fees. Examples include transit passes, permits, recycling fees and fines.
Once the regular revenues are subtracted from the city's yearly operating budget, what's left (close to the half of the budget) is largely covered by property taxes.
In fact, that's literally the tax rate equation:
(Budget – regular revenues) ÷ value of all properties = tax rate
And because the city has been spending more, taxpayers have been paying more. Simple math.
How does Calgary compare to other cities?
The 2017 property tax rate for Calgary homeowners is $3.96 per $1,000 of assessed property value. It's one of the lowest in the country, despite differences in how cities divide their fees:
But the rates alone don't tell the whole story.
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Vancouver may enjoy the lowest rate of all the major centres, but the city's real estate assessments are also insanely high. The City of Calgary publishes an annual survey comparing the total tax and utility bills of 15 cities.
Calgary tends to rank on the lower end, with Edmonton, Toronto and Vancouver almost always paying more in municipal property taxes.
What about businesses?
The picture is less rosy when it comes to businesses. Some might even call the situation dire.
The City of Calgary is in the midst of phasing out a municipal business tax, blending it with the non-residential property tax.
As a result, the non-residential property tax rate rose 14 per cent in 2017, and 13 per cent in 2016, after dropping slightly in the two years prior.
(The business tax rate, meanwhile, was reduced by 10 per cent in 2014, 10 per cent in 2015, 20 per cent in 2016 and 20 per cent in 2017. It will be reduced by 20 per cent for each of the next two years, such that it is fully eliminated in 2019.)
Why have some bills more than doubled?
The problem lies in the "dark math" of property tax bills.
To make up for the fallout of downtown businesses, the tax burden has been shifted. Again, because the math has to work out. The city cannot run a deficit.
"If a building owner were to sell their building, obviously they're going to get a lot less money for it if it's empty versus if it's full of renters," says Zoe Addington, director of policy at the Calgary Chamber.
"Because they are empty with all the layoffs that we've seen, the value has dropped down in downtown. And because the city doesn't have other sources of revenue, what they did was go to businesses outside of the downtown core and basically just transferred that tax burden onto them."
Now council did end up passing a $45-million relief fund to soften the blow, but it's unclear if a similar reprieve will happen again in 2018.
Some business owners are also questioning changes to their assessments.
Bernard Druin, owner of 17th Avenue Framing, saw the assessed value of his store jump more than $1 million in 2017. As a result, his tax bill went up 95 per cent.
He appealed the assessment but lost. So he started planning for the following year.
"What I did was I contacted a professional assessor that assessed properties in the past and I explained to him the situation saying, 'I'm sure if you appraise it, you're going to come to a number totally different than what the city's coming, and I could use that next year in my challenge,'" says Druin. "He basically said, 'You know I'd like to take your $3,000 for your assessment but you're not going to win. The city — they don't care.'"
The tax bill for another former business farther east, Studio Revolution Fitness, jumped from around $19,000 to $61,000 this year.
"Absolutely blown away," says former owner Mallory Chapman, who closed the boutique gym in early October.
"I didn't think that that was possible. When you do your business plan and you do your analysis, you can plan for things like the 17th Avenue construction, you can plan for things like a recession, but you can't forecast an astronomical increase in your property taxes like we've faced."
How bad is the tax imbalance?
Businesses currently pay at a rate that's three and a half times higher than homeowners — at $13.88 per $1,000 in assessed value. That gap is the highest among all the cities in Alberta, and one of the highest in Canada.
"There's too much of a gap, and that's something that's going to have to be tackled for us to be more attractive for businesses to relocate here," says Ward 3 Coun. Jim Stevenson, who's not seeking re-election.
"I'm not one that thinks our residential tax is too high. I've done a lot of studies across the country and I think our business tax is too high, but residential could go up some more," he adds.
What can the new city council do about it?
As with any budgetary shortfall, there are only two main solutions: increase revenue or decrease spending. The city's biggest expenditures are police, transit, fire and roads, which take up 75 per cent of our property taxes.
Finding places to make meaningful cuts is an incredibly difficult task, warns the outgoing Ward 11 councillor.
"You go into budget having just heard, 'Don't increase my taxes, cut my taxes, you're killing me, I hate my taxes,'" says Brian Pincott. "And we forget about the 50 weeks where people are saying, 'I want my snowplow, you've got to get here quicker! My park hasn't been mowed and they forgot to pick up my garbage today!'"
Hard as it may seem, economist Trevor Tombe from the University of Calgary believes there is a lot that the new council can trim without affecting essential services.
"In many ways, Calgary does have pretty high levels of spending," says Tombe, citing reports from the Municipal Benchmarking Network Canada, which compares service costs between 16 municipalities across six provinces.
"Total cost of HR administration here is quite a bit higher than elsewhere. Our vehicle fleet, for example, is large and expensive. Garbage collection, per tonne, higher than many other cities," he says.
A third option?
There is, of course, a third option that's available to most of us, but not the City of Calgary. And that's putting it on the credit card, or going into debt.
True, cities can't run deficits, but there are talks of loosening the rules a bit.
"One of the changes the provincial government is looking at — we saw in the new city charter — is to allow cities like Calgary to not balance every year, but balance over a four-year period," says Tombe.
"So it can run a deficit in one year, as long as it's offset by a surplus later. And that might be something to think about to buffer property taxpayers from the type of shock we've seen here with the low oil prices."
Some municipalities are also advocating for more taxing powers, such as the ability to impose a sales tax. The Canadian Taxpayers Federation is fiercely lobbying against the idea.
Economist Ron Kneebone agrees it's a slippery slope.
"I don't think it's necessary," he says. "And it also raises the possibility that they might start getting themselves in trouble, just as they did in the 1930s."