LOCAL GOVERNMENT FINANCE (2005 – Revised 2006)

Since the “Community Charter” was enacted, BC municipalities have more freedom to set local taxation than ever before. This includes increasing rates as well as offering tax exemptions that can be used to help encourage development in certain areas and sectors.

This localized accountability has created some issues that need to be controlled through government legislation so that the process and setting of tax rates in municipalities is fair to all. Recent reports, including the “Property Taxes on Business and Industrial Property in British Columbia: Comparisons and Business Climate Observations (October 2003)” and the “Kennedy Report (Government Services Delivery and Financing Oct. 2003)” reveal the struggles municipalities and taxpayers face. Municipalities find themselves losing external sources of funding and support from provincial and federal government grant reductions to significant levels. In addition, municipal governments find themselves competing to encourage investment of businesses as well as to increase population through attractive residential tax rates. Comparing tax rates across the Canada is problematic as fee for service and other provincial variations make it impossible to fairly compare rates.

The size of business community’s contribution, along with the complex nature of the system, has been recognized by the Provincial Government as being a serious impediment to the provinces competitiveness and has galvanized the government into action to address the serious concern being expressed across the business community.

In addition these taxes are not the only costs incurred by business at the local level. The business community is also the primary target for Development Cost Charges and municipal licence fees, both of which the municipal government have significant latitude to set with no recourse for the business community. To say nothing of the charges incurred at the regional government level.

It must also be noted that as the province looks to accommodate the increasing demands from regions/municipal levels of government for more local control over transportation this too will incur costs for the local taxpayer, primarily the business community.

This has been demonstrated by the situation in the Lower Mainland which has seen the financial burden for capital health facilities replaced by a local tax dedicated to the regional transportation authority based on property assessment. In recent months we have seen a further demonstration of business being unfairly targeted in terms of taxation with the imposition of the Parking Site Tax.

Within this structure the provincial government must also take some of the responsibility. A recent report from the Solicitor General has recommended That the Provincial Government implement a model whereby they will recover 50% of the cost of providing local police services to municipalities with population under 5,000 and rural property taxpayers. Under this model municipalities would be responsible for finding approximately $30 million to cover these costs.

Given the nature of municipal accountability and the lack of recourse for the business community the chamber believes it highly likely that business will end up footing the majority, if not all, of this new cost.

Underlying the inherently discriminatory nature of the local government tax system is the fact that there are 9 distinct classes of property recognized in BC:

• Class 1 – residential
• Class 2 – utilities
• Class 3 – repealed
• Class 4 – major industry
• Class 5 – light industry
• Class 6 – business and other
• Class 7 – managed forest land
• Class 8 – recreational property and not – for – profit land
• Class 9 – farm
• Class 10 - split classification

Comparing tax rates and increases are analyzed in two primary methods. First through the actual tax paid for a given class and second by percentage comparison of one class to another. Both methods are flawed and can make any one municipality appear the lowest tax rate given the right comparison. Throughout BC such analysis is given to attract business in one municipality over another. With the Community Charter opening up tax exemptions locally, there is a potential problem particularly in the lower mainland where several municipalities compete for business attraction and retention.

There are two arguments for setting tax rates. The first is to use an allocation of taxes based on usage of services by the particular class itself. If this were the method of choice, residential rates would increase from a level of approximately 40% to over 70% of the tax base. The second method is to base rates on a balance of use as well as ability to pay. In this way the burden is shared across classes. Although this allows for the burden to be more widely distributed, care must be made to ensure one class does not arbitrarily end up subsidizing to a great degree another class.

THE CHAMBER RECOMMENDS

That the Provincial Government;

1. undertake a fundamental review of the local property tax system with a view to establishing a system that is fair, equitable and reflects the true cost of service for each taxpayer group;

2. provide immediate relief to the business community by announcing a reduction in the School Tax;

3. ensure that any changes are grandfathered over a defined timeframe to allow for municipalities to adjust and to ensure a smooth transition for the taxpayers; and

4. establish a mechanism that allows for the continual review of local government taxation to ensure our continued competitiveness.

5. conduct a comprehensive analysis of the cost of municipalities being granted funding responsibility for new or existing services