Audit Budget and Finance Committee
Comité de Vérification, du budget et des finances
and Council / et au Conseil
5 February 2010 / le 5 février 2010
Submitted by/Soumis par: Marian Simulik, City Treasurer/Trésorière
municipale
Contact
Person/Personne ressource : Ken Hughes
Deputy City Treasurer, Revenue/ Trésorier Municipal Adjoint, Recettes
Finance
Department/Service des finances
(613)
580-2424 x 13485, Ken.Hughes@ottawa.ca
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Ref N°: ACS2009-CMR-FIN-0009 |
SUBJECT:
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OBJET :
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That the Audit Budget and
Finance Committee recommend Council:
1.
a) Approve and accept the offer
from the owners of Scotiabank Place to increase the taxes payable to $2,315,250
over a four (4) year phase-in period from 2011 to 2014; and
b) Direct staff of the City Clerk and
City Solicitor Department to prepare an amendment to the current Scotiabank
Place property tax agreement; and
2. Direct staff of the Revenue Branch to negotiate a mutually acceptable increase to the annual ex gratia payments made by the National Arts Centre, in accordance with an agreement dated the 1st day of December, 1999, between the National Arts Centre Corporation and the City of Ottawa.
Que le
Comité de la vérification, du budget et des finances recommande au
Conseil :
1.
a) D’approuver
et d’accepter l’offre des propriétaires de la Place Banque Scotia visant à
porter progressivement les taxes exigibles à 2,315,250$ sur une période de
quatre (4) ans, soit de 2011 à 2014; et
b) De demander au personnel du Bureau du
greffier municipal et chef du contentieux de rédiger une modification à
l’entente portant sur les taxes foncières de la Place Banque Scotia; et
2. De demander au
personnel de la Direction des recettes de négocier une augmentation acceptable
de part et d’autre des paiements à titre gracieux effectuées par le Centre
national des Arts conformément à une entente conclue le 1 décembre 1999 entre
la Société du Centre national des Arts et la Ville d’Ottawa.
Staff is
seeking approval of and direction on the agreements currently in place for two
specific properties.
The professional sports facility, first known as the Palladium, opened in January 1996 was later renamed the Corel Centre and then Scotiabank Place in 2005. In 1998, when the Club was experiencing financial difficulties, the owner of the day asked for relief from all levels of government. In response to this request the Province created the Professional Sports Facility (PSF) tax class. The objective in creating this new class was to provide municipalities with the necessary tax tools to reduce or even eliminate the property tax burden on professional sport facilities. In 1999 the City of Kanata and the Regional Municipality of Ottawa-Carleton opted to use the new PSF class. In 2000 an agreement was entered into with the Palladium Corporation that limited the property tax on the property for the period of 2000 to 2004 to a maximum of $700,000 per year rather than the $4 plus million that would have been levied. For 2005 and 2006 the amount would be increased by levy increases for the commercial property tax class.
In 2006, Council directed staff to revise the property tax relief
provided to Capital Sports Properties Inc. (CSPI) for Scotiabank Place and conduct a review
of the agreement once every four (4) years.
The resulting agreement covered the 2007 through 2010 taxation
years. Taxation was about $700,000 in
2006 and by 2010 the annual taxation was increased to $1.6 million. Per the terms of the agreement, the City could
not unilaterally decide to review the tax agreement before 2010. In the 2009
Tax Ratios and Other Tax Policies report staff indicated they would bring
forward this report to address the issue of tax objectives for Scotiabank Place
for the 2011 and subsequent taxation years.
Table one shows the taxes paid by Scotiabank Place since amalgamation and proposed for 2010 based on the current agreement.
|
Year |
Municipal |
Education |
Total billed |
|
2001 |
$ 431,268 |
$ 179,898 |
$ 611,166 |
|
2002 |
$ 479,944 |
$ 220,055 |
$ 699,999 |
|
2003 |
$ 430,953 |
$ 269,041 |
$ 699,994 |
|
2004 |
$ 477,204 |
$ 227,165 |
$ 704,369 |
|
2005 |
$ 510,039 |
$ 203,703 |
$ 713,742 |
|
2006 |
$ 511,043 |
$ 206,189 |
$ 717,232 |
|
2007 |
$ 586,431 |
$ 290,118 |
$ 876,549 |
|
2008 |
$ 734,931 |
$ 336,318 |
$ 1,071,249 |
|
2009 |
$ 874,724 |
$ 434,472 |
$ 1,309,196 |
|
2010
(est.) |
$ 1,037,021 |
$ 562,979 |
$ 1,600,000 |
National Arts Centre
In 1999, the National Arts Centre Corporation acquired, from the Federal Government, legal title to the lands (53 Elgin Street) where the National Arts Centre (NAC) is now situated. Previous to the transfer of title, the Federal Government was paying grants-in-lieu of taxes of $6.2 million (inclusive of capping) on the assessed value of the property, pursuant to the Municipal Grants Act, R.S.C., 1985, as amended. With the acquisition, the NAC continued to be exempt from assessment and taxation pursuant to the Assessment Act. The NAC while undergoing significant renovations requested some relief on the amount of their payments. A payment of $5 million was made for 2000.
In discussions between the City of Ottawa and the NAC it was agreed that relief could be considered if a payment agreement were completed. Eventually, in recognition of “… the related incidental rental, restaurant and parking activities carried out on the Lands and contribute to the services provided…” both the NAC and the City of Ottawa (City) entered into an agreement to establish a schedule of annual ex gratia payments. The initial term of the agreement was for ten (10) years covering 2000 through 2009 taxation years. At the end of the initial term, the agreement also allowed for a ten (10) year extension. Either party could exercise this option by giving written notice on or before January 31, 2008 to the other party. Such notice was served by way of a letter, dated January 16, 2008, from the City Treasurer to the President and Chief Executive Officer of the NAC. The Agreement was automatically extended for further term of ten (10) years with all the terms and conditions remaining, except for the schedule of annual ex gratia payments, which would be revised.
Scotiabank
Place
The agreement covered the taxation for the years 2007 through 2010. The taxation was increased from about $700,000 in 2006 to $1.6 million in 2010. The agreement provides that should the taxes in the commercial tax class be lower than the agreed taxes the lower amount will apply. For the 2010 tax year the assessed value of the property as determined by MPAC is just over $124 million. This would yield Current Value Assessment (CVA) taxes of about $ 4.6 million in taxes. The property owners are convinced that the value of the property is significantly less than this value. Consequently, there are appeals open on the eleven roll numbers that collectively are known as Scotiabank Place for the years 2004 through 2009. City staff expect that 2010 will also be appealed. The property owners and MPAC have been negotiating the appeal of the property for some time. Until the final value of the property for all prior years is mutually agreed upon by the property owner and MPAC or determined by the Assessment Review Board it is not possible to determine the taxation for Scotiabank Place in the commercial property tax class.
The difficulty of the negotiations between the property owner and MPAC to agree on the value of Scotiabank Place cannot be overstated. The valuation of unique properties like Scotiabank Place pose challenges for a number of reasons:
Council has previously indicated the desire to increase the taxation for Scotiabank Place. In the interim until the assessed value of the property is finally determined, staff and the property owner have been discussing increases to the agreement. The property owner has proposed increasing the payment for 2011 to $2 million, a 25% increase over the 2010 payment per the agreement. Thereafter, they are proposing annual increases to the payment of 5% through 2014. The new amounts would be as follows:
2011 - $ 2,000,000
2012 - $ 2,100,000
2013 - $ 2,205,000
2014 - $ 2,315,250
The same provision would apply in that should the CVA taxes (assessment times tax rate in the commercial tax class) be lower they would pay the CVA taxes.
City staff will continue to monitor the valuation negotiations between Scotiabank Place and MPAC.
National Arts Centre
In accordance with the Schedule of Payments (Schedule “D” of the Agreement) since 2003, the NAC has made annual payments of $2,000,000. The Agreement stipulates that upon an extension, the parties are to “… reasonably and in good faith …” negotiate the ex gratia amounts to be paid annually for the extended term. However, the Agreement also provides that until the new amounts of annual payments are negotiated, the amount provided for in calendar year 2009 shall continue for subsequent years. Therefore, if a settlement cannot be reached in time for calendar year 2010, the City would still be entitled to receive $2,000,000 in ex gratia payment.
The Agreement recognizes the NAC’s will to lessen the financial impact the transfer of title created and to recognize “… the related incidental rental, restaurant and parking activities carried out on the Lands and contribute to the services provided …” by the City.
In light of the above-mentioned spirit of the Agreement, city staff would be seeking reasonable increases to the annual payments made by the NAC, under the extended agreement. Costs of local services translate into tax levy increases, as witnessed by the yearly municipal budgets. These facts suggest that a reasonable increase is justified under the circumstances. Different methods of calculations could be used to achieve this objective. Staff are proposing the following alternative methods:
Scotiabank Place
Revenue
Branch staff have consulted the owners of Scotiabank Place and staff in City
Clerk and City Solicitor Department. No
public consultation of the recommendation took place, as Council has authority
to extend the current agreement.
National Arts Centre
Revenue
Branch staff have consulted staff of the City Clerk and City Solicitor
Department. Notice has been
served in accordance with section 5 of the agreement made on December 1, 1999,
between the National Arts Centre Corporation and the City of Ottawa, thereby
extending the terms of the agreement for an additional ten (10) years. Upon approval of this report’s
recommendation, staff will proceed to negotiate with the NAC a revised Schedule
of Payments (Schedule “D” of the Agreement) to establish reasonable amounts of
payments for future years.
There
are no legal or risk management impediments to approving the recommendations in
this report.
There are no financial implications for 2010. The amount to be billed for 2010 ($1,600,000) is in the amended agreement with the owners of Scotiabank Place.
Under the current agreement with the National Arts Centre, an annual amount of $2,000,000. would continue to be received by the City, until an agreement can be reached on the new annual payments applicable for the extended term.
This report does not have any specific implications for the rural areas.
Staff of the City Clerk and City Solicitor
Department to prepare an amendment to the current Scotiabank Place property tax
agreement and will arrange for the execution of any necessary legal documents.
Originating Department to proceed with negotiations with the National Arts Centre Corporation in order to attain a settlement on the annual payment schedule for the extended term. Revenue Branch staff to continue invoicing on the basis of the 2009 annual payment (as indicated in section 5 and on Schedule “D” of the Agreement) until an agreement is reached between the parties on a mutually acceptable increase.