Updated Jan. 12 with a thought on a progressive property tax.
It’s budget time at Toronto City Hall. Right now, city councillors are in the process of debating the city’s expenses and revenues. While the City of Toronto, like all municipalities in the province, is prohibited from operating at a deficit, there’s a ever-growing gap between revenue (taxes, fees, grants, etc.) and the necessary operating and capital expenses required to successfully run a city of 2.6 million people.
Operating expenses are being held back due to “gapping,” in which vacant staff positions aren’t filled immediately. This is an easy way to cut costs, especially at a time when all city departments – the Toronto Police Service excepted – were requested by Mayor John Tory to reduce costs by 2 percent. But as Neville Park explains in Torontoist, this is not a viable long-term strategy.
Meanwhile, the capital costs keep piling up. The Toronto Community Housing Corporation (TCHC) has hundreds of uninhabitable units; thousands more are at risk of being closed up unless its capital backlog is addressed. The Toronto Transit Commission (TTC) has a backlog of state-of-good-repair projects necessary to maintain its sophisticated transit system operating, as well as unfunded projects to improve accessibility and purchases of new vehicles to keep up with demand and grow ridership.
Estimated City of Toronto 2016 operating budget revenue (source)
In 2016, $3.95 billion will be collected from property taxes in order to fund the City of Toronto’s operating budget, just over a third of all revenue. It’s the largest source of revenue, but provincial grants, user fees (such as TTC fares) and fines, water and waste management charges are other important sources of revenue. The much-loathed municipal land transfer tax will contribute $532 million to the city’s budget, an increasingly important source of revenue. But there’s still a projected gap, estimated between $90 and $124 million, that still has to be filled. That’s where the debate will largely focus on.
Property taxes mostly do not fund the city’s capital budget; utility and parking rates are the largest single-source of funds (water, waste and city parking are self-financing), followed by provincial and federal grants (largely to fund transit and other infrastructure), development fees, and debt-financing and from the city’s capital reserves.
Mayor Tory, despite wanting to hold the line on expenses, also wants to build his signature – yet unrealistic – SmartTrack line, among other transit projects, as well as social housing. He proposed a new levy (not calling it a “tax”) in December, if approved, it would be phased-in, starting in 2017.
I’ve been critical of Mayor Tory’s administration, but his proposed infrastructure levy is a step in the right direction. It’s an acknowledgement that the backlog of necessary capital projects needs to be addressed.
But I was concerned to read last week in the Toronto Star that senior city staff and Tory’s advisers were considering, even laying some of the groundwork, for a sale of a minority stake of Toronto Hydro to pay for new infrastructure. While it might raise $1.5 billion, it would be a one-time source of funds, and would reduce or eliminate an annual dividend that raised $60 million for the city in 2014. There were also rumours of a partial or complete sale of the Toronto Parking Authority. But responding in the Toronto Sun, Tory denied having such plans.
The City of Toronto desperately needs to seek new, stable, and sustainable revenue sources beyond the property tax and user fees, neither of which are progressive or especially fair. Reinstating the vehicle registration tax would be a good place to start, at least to fund the city’s unfunded anti-poverty strategy, but income and sales taxes, currently prohibited by provincial legislation, tied to inflation, would help. So would increased, sustained provincial and federal assistance.
You can find out more about the 2016 budget at the city’s website here. I’m not following the debates that closely, but Torontoist can be counted on for good issue-based coverage, the Toronto Star’s Ed Keenan provides excellent commentary.
On property taxes, current value assessments, and a progressive property tax
Property taxes are a very difficult subject to explain, but David Hains at Torontoist explains how they work far better than I, or most people, can. Property taxes are not well understood, but it’s important to note that despite rising property values, the city does not necessarily collect more taxes on each property. In many cases, even with a tax hike, the amount paid by some property owners may stay the same, or even decrease.
Property taxes provide a predictable and reliable revenue source, but unlike income and sales taxes, they do not increase automatically with inflation; annual tax increases determined by City Council allows the city budget to grow with inflation and support city priorities, such as improved transit, infrastructure repairs, or other city services.
The city is also phasing in changes to property taxes in order to reduce the burden on commercial properties (including multi-unit residential rental buildings) and increase it on freehold units. This is why, in 2013, I received a rent reduction notice as the property taxes in the apartment building I was living in at the time was reduced.
To satisfy my interest in property taxes, property values, and assessments, I created three maps based on a City of Toronto 2016 budget briefing note on changes to the current value assessment (CVA) from 2015 to 2016. The Municipal Property Assessment Corporation (MPAC) conducts property tax assessments for all properties on behalf of municipal governments in Ontario every four years. It is upon these assessments that the city calculates each property’s tax rates.
The first map, below, shows the average assessed residential property value for 2016, using a standard deviation classification scheme. Ward 25 has, by far, the highest average property value, at $1,375,568. Ward 25 includes the exclusive Bridle Path neighbourhood, as well as the affluent Lawrence Park East and York Mills neighbourhoods. Other Midtown Wards (16, 22, 21) are well above the city’s average property value, assessed at $549,586. Lowest is Ward 8, whose average residential property is assessed at $301,320.
It’s interesting to note that, with the exception of Ward 4, which narrowly voted for Doug Ford in 2014, the map closely resembles that of John Tory’s support base.
The second map, below, shows the change in the average CVA in each ward. Ward 18, which includes the gentrified or gentrifying Queen West, Brockton, Junction Triangle, and Dovercourt Village neighbourhoods had the highest annual average CVA increase, at 6.6 percent. Other downtown wards, such as 14 (which includes gentrifying Parkdale, Roncesvalles, and part of the Junction), 19, and 28 did well, as well as Wards 23, 24 and 41 in the suburbs. The northwest had the smallest average increases in assessments, with Ward 8 again coming in at the bottom, with only a 3.3% increase.
Finally, the map below shows the entire aggregate value of residential assessments in 2016. Not surprisingly, Wards along the dense Yonge Street corridor had the highest values. Except for Wards 16 and 25, all have higher than average ward populations, and housing in most neighbourhoods largely consists of expensive detached houses and highrise condominiums.
In today’s Toronto Star, Ryerson Professor (and friend) Myer Siemiatycki discusses the idea of a progressive property tax. A progressive property tax would be similar to income taxes, in which tax brackets are set up, lowering taxes on lower-value properties, and raising them on properties with high assessed values. Siemiatycki proposes that a first bracket, if a system was implemented this year, would ensure that properties worth under $400,000 would pay less property tax than they paid in 2015. A second bracket would apply to properties assessed at between $400,000 to $600,000, which would be subject to the currently proposed tax increase. Properties worth over $600,000 would be subject to higher property tax increases, the highest bracket topping out at properties worth over $2.5 million. Siemiatycki argues that the most expensive properties have benefited most from Toronto’s increasing housing prices.
This is an interesting idea that would raise more revenue for the City of Toronto, give many “Ford Nation” residents a tax reduction, and provide more fairness in the flat property tax rate. It would be much more easily implementable than, say, sales and income taxes. But given that John Tory’s base (and wards represented by some of his staunchest allies) would be most affected by such a progressive tax system, I don’t hold out much hope for its adoption.