4. 2003 TAX RATIOS and other tax policies

RATIOS D’IMPOSITION ET AUTRES POLITIQUES FISCALES POUR L’ANNÉE 2003

Committee Recommendations as amended

That Council approve:

1. The use of the following optional property classes: the shopping centre commercial property class, the parking lots and vacant lands commercial property class, the office building commercial property class, the large industrial property class, the new multi-residential property class, and the professional sports facility class;

2. The extension of the eligibility for the New Multi-Residential tax class from 8 years to 35 years for all properties that were constructed prior to 2002 to be consistent with those properties built in 2002 and later.

3. The adoption of the following tax ratios for the 2003 tax year:

Residential	1.0000
Multi-Residential	2.1780
New Multi-Residential	1.0000
Farm	0.2500
Managed Forest	0.2500
Pipeline	1.1326
Commercial Broad Class	1.9800
Commercial-Residual	1.8846
Office Building	2.2775
Parking Lots and Vacant Land – Commercial	1.2349
Shopping Centre	1.5676
Professional Sports Facility	N/A
Industrial Broad Class	2.0775
Industrial – Residual	2.2439
Large Industrial	1.9269

4. The adoption of the following tax ratios for the mandatory property subclasses:

commercial excess land (i.e. commercial, office and shopping centre tax classes)—70% of the applicable commercial property class tax ratio;

vacant industrial, large industrial and excess land—65% of the applicable industrial property class tax ratio;

farmlands pending development class I—45% of the residential property class tax ratio;

farmlands pending development class II—no discount.

5. That the tax rates detailed in appendix A be approved.

6. That in each future year the multi-residential tax ratio be reduced by transferring sufficient burden so that the automatic rent reduction will be triggered.

7. That the mitigation programs currently in place and detailed in this report be continued for 2003.

8. That the Finance Branch together with the People Services Department reviews the eligibility criteria of a rebate program for organizations similar to charitable organizations and report to Council before June 30^th.

9. That for 2003, the multi-residential class burden be reduced by an additional $1 million, the tax ratio amended accordingly for 2004 and funding be taken from the provision for remissions and appeals (for 2003 only).

10. That if landlords do not flow through the ratio shift from multi-residential to residential, that Council address that fact next year during consideration of ratios.

11. That Council indicate to the Province the current tax policy regulations are too restrictive and non responsive to our current needs; and

That Council ask the Province to amend the tax policy regulations to provide municipalities with greater flexibility in dealing with taxation fairness and inequities.

Recommandations modifiÉes du comité

Que le Conseil approuve ce qui suit :

1. la mise en vigueur des catégories de biens facultatives énumérées ci-après : biens commerciaux - centres commerciaux; biens commerciaux - parcs de stationnement et terrains vacants; biens commerciaux - immeubles de bureaux; grands biens industriels; nouveaux biens multirésidentiels; établissements de sport professionnel.

2. la prolongation de 8 ans à 35 ans de la période d’admissibilité à la catégorie d’imposition des nouveaux biens multirésidentiels en ce qui concerne les biens construits avant 2002, de façon à prévoir un traitement uniforme en comparaison des biens construits à compter de 2002.

3. l’adoption des ratios d’imposition suivants applicables à l’année d’imposition 2003 :

Biens résidentiels	1,0000
Biens multirésidentiels	2,1780
Nouveaux biens multirésidentiels	1,0000
Exploitations agricoles	0,2500
Forêts aménagées	0,2500
Pipelines	1,1326
Biens commerciaux - catégorie générale	1,9800
Biens commerciaux - catégorie résiduelle	1,8846
Immeubles de bureaux	2,2775
Parcs de stationnement et terrains vacants - biens commerciaux	1,2349
Centres commerciaux	1,5676
Établissements sportifs professionnels	--
Biens industriels - catégorie générale	2,0775
Biens industriels - catégorie résiduelle	2,2439
Grands biens industriels	1,9269

4. l’adoption des ratios d’imposition suivants applicables aux sous-catégories d’imposition obligatoires énumérées ci-après :

terrains commerciaux excédentaires (c’est-à-dire catégories d’imposition des biens commerciaux, des immeubles de bureaux et des centres commerciaux) - 70 % du ratio d’imposition applicable à la catégorie des biens commerciaux;

terrains industriels vacants, grands biens industriels et terrains excédentaires - 65 % du ratio d’imposition applicable à la catégorie des biens industriels;

terres agricoles en attente d’aménagement de catégorie I - 45 % du ratio d’imposition des biens résidentiels;

terres agricoles en attente d’aménagement de catégorie II - aucun rabais.

5. que les taux d’imposition décrits à l’annexe A soient approuvés.

6. que les ratios d’imposition multirésidentiels soient réduits pour chaque année à venir en transférant des frais généraux suffisants afin de permettre le déclenchement de la réduction automatique du loyer.

7. que les programmes d’atténuation actuellement en place et décrits dans le présent rapport demeurent en vigueur pour l’année 2003.

8. que la Direction des services financiers, en collaboration avec les Services aux citoyens, examine les critères d’admissibilité du programme de remises destiné aux organismes semblables aux organismes de bienfaisance et qu’elle présente un compte rendu au Conseil municipal avant le 30 juin prochain.

9. Que, pour 2003, le fardeau fiscal relatif à la catégorie des propriétés à logements multiples soit réduit d’un montant supplémentaire de 1 million de dollars, que le ratio d’imposition soit modifié en conséquence pour 2004 et que les crédits nécessaires soient puisés à même la provision pour remises et appels (pour 2003 seulement).

10. Que, si les propriétaires ne répercutent pas le changement de ratio entre le secteur des propriétés à logements multiples et le secteur résidentiel, le Conseil en tiendra compte au moment d’étudier les ratios d’imposition l’an prochain.

11. Que le Conseil fasse savoir au gouvernement provincial que la réglementation actuelle concernant la politique fiscale est trop restrictive et qu’elle ne répond pas à nos besoins actuels;

Que le Conseil demande au gouvernement de modifier la réglementation concernant la politique fiscale de manière à donner plus de latitude aux municipalités en matière d’équité fiscale.

For the information of Council

The Committee approved the following Motion in conjunction with its recommendations to Council (Note: this Motion does not require approval by Council):

That the following motion from Councillor Bellemare be referred for further investigation to staff to analyse the benefits and/or consequences of implementing such a reserve fund with a report to come forward to Corporate Services and Economic Development Committee during deliberations on the budget guidelines:

“That staff identify payments/contributions to the Property Tax Stabilization Fund in future draft budgets in order to build a reserve fund that could mitigate against annual shifts in tax burdens from one tax class to another.”

Documentation

1. Corporate Services Department General Manager's report dated 24 April 2003 (ACS2003-CRS-FIN-0019).

2. Extract of Draft Minutes, Corporate Services and Economic Development Committee, 06 May 2003.

3. The following documents are held on file with the City Clerk:

· Presentation to Committee by J. Dickie, Chair, Eastern Ontario Landlord Organization dated 06 May 2002.

· Open Letter to Mayor Chiarelli from Milan Kocourek

· Submission entitled “Tax Fairness Now” from the Tenants and Landlords for Fair Taxation

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du dévéloppement économique

and Council/et au Conseil

24 April 2003/le 24 avril 2003

Submitted by/Soumis par: Kent Kirkpatrick, General Manager/Directeur général

Corporate Services Department/Services généraux

Contact/Personne ressource: Lloyd Russell, Director of Financial Services and City Treasurer/ Directeur des Services financiers et trésorier municipal

580-2424, ext. 21312, Lloyd.Russell@ottawa.ca

Ref N°: ACS2003-CRS-FIN-0019

SUBJECT:	2003 TAX RATIOS and other tax policies
OBJET :	RATIOS D’IMPOSITION ET AUTRES POLITIQUES FISCALES POUR L’ANNÉE 2003

REPORT RECOMMENDATIONS

That the Corporate Services and Economic Development Committee recommend Council approve:

1. The use of the following optional property classes: the shopping centre commercial property class, the parking lots and vacant lands commercial property class, the office building commercial property class, the large industrial property class, the new multi-residential property class, and the professional sports facility class;

2. The extension of the eligibility for the New Multi-Residential tax class from 8 years to 35 years for all properties that were constructed prior to 2002 to be consistent with those properties built in 2002 and later.

3. The adoption of the following tax ratios for the 2003 tax year:

Residential	1.0000
Multi-Residential	2.1780
New Multi-Residential	1.0000
Farm	0.2500
Managed Forest	0.2500
Pipeline	1.1326
Commercial Broad Class	1.9800
Commercial-Residual	1.8846
Office Building	2.2775
Parking Lots and Vacant Land - Commercial	1.2349
Shopping Centre	1.5676
Professional Sports Facility	N/A
Industrial Broad Class	2.0775
Industrial - Residual	2.2439
Large Industrial	1.9269

4. The adoption of the following tax ratios for the mandatory property subclasses:

commercial excess land (i.e. commercial, office and shopping centre tax classes) - 70% of the applicable commercial property class tax ratio;

vacant industrial, large industrial and excess land - 65% of the applicable industrial property class tax ratio;

farmlands pending development class I - 45% of the residential property class tax ratio;

farmlands pending development class II - no discount.

5. That the tax rates detailed in appendix A be approved.

6. That in each future year the multi-residential tax ratio be reduced by transferring sufficient burden so that the automatic rent reduction will be triggered.

7. That the mitigation programs currently in place and detailed in this report be continued for 2003.

8. That the Finance Branch together with the People Services Department reviews the eligibility criteria of a rebate program for organizations similar to charitable organizations and report to Council before June 30^th.

RECOMMANDATIONS DU RAPPORT

Que le Comité des services organisationnels et du développement économique recommande au Conseil d’approuver ce qui suit :

1. La mise en vigueur des catégories de biens facultatives énumérées ci-après : biens commerciaux - centres commerciaux; biens commerciaux - parcs de stationnement et terrains vacants; biens commerciaux - immeubles de bureaux; grands biens industriels; nouveaux biens multirésidentiels; établissements de sport professionnel.

2. La prolongation de 8 ans à 35 ans de la période d’admissibilité à la catégorie d’imposition des nouveaux biens multirésidentiels en ce qui concerne les biens construits avant 2002, de façon à prévoir un traitement uniforme en comparaison des biens construits à compter de 2002.

3. L’adoption des ratios d’imposition suivants applicables à l’année d’imposition 2003 :

Biens résidentiels	1,0000
Biens multirésidentiels	2,1780
Nouveaux biens multirésidentiels	1,0000
Exploitations agricoles	0,2500
Forêts aménagées	0,2500
Pipelines	1,1326
Biens commerciaux - catégorie générale	1,9800
Biens commerciaux - catégorie résiduelle	1,8846
Immeubles de bureaux	2,2775
Parcs de stationnement et terrains vacants - biens commerciaux	1,2349
Centres commerciaux	1,5676
Établissements sportifs professionnels	--
Biens industriels - catégorie générale	2,0775
Biens industriels - catégorie résiduelle	2,2439
Grands biens industriels	1,9269

4. L’adoption des ratios d’imposition suivants applicables aux sous-catégories d’imposition obligatoires énumérées ci-après :

terrains commerciaux excédentaires (c’est-à-dire catégories d’imposition des biens commerciaux, des immeubles de bureaux et des centres commerciaux) - 70 % du ratio d’imposition applicable à la catégorie des biens commerciaux;

terrains industriels vacants, grands biens industriels et terrains excédentaires - 65 % du ratio d’imposition applicable à la catégorie des biens industriels;

terres agricoles en attente d’aménagement de catégorie I - 45 % du ratio d’imposition des biens résidentiels;

terres agricoles en attente d’aménagement de catégorie II - aucun rabais.

5. Que les taux d’imposition décrits à l’annexe A soient approuvés.

6. Que les ratios d’imposition multirésidentiels soient réduits pour chaque année à venir en transférant des frais généraux suffisants afin de permettre le déclenchement de la réduction automatique du loyer.

7. Que les programmes d’atténuation actuellement en place et décrits dans le présent rapport demeurent en vigueur pour l’année 2003.

8. Que la Direction des services financiers, en collaboration avec les Services aux citoyens, examine les critères d’admissibilité du programme de remises destiné aux organismes semblables aux organismes de bienfaisance et qu’elle présente un compte rendu au Conseil municipal avant le 30 juin prochain.

BACKGROUND

During 1997 and 1998, the provincial government enacted legislation that fundamentally changed the property taxation and assessment system in Ontario. The major changes included the assessment of all properties at market value and the elimination of the business occupancy tax. A further change provided for shifts in taxation between property tax classes dependent upon the increases within each class relative to all other classes. Prior to the new legislation reassessment shifts only occurred within properties within each class and there were no shifts in tax burden between classes.

In November of 1998, the Province imposed mandatory limits on assessment reform-related property tax increases over 1997 taxation for commercial, industrial and multi-residential properties of 10% for 1998, 5% in 1999 and 5%. In December 2000, enacted the Continued Protection for Property Taxpayers Act, 2000 which legislated that for 2001 and subsequent years, all municipalities are required to limit the assessment reform-related property tax increases on commercial, industrial and multi-residential properties to 5% of the previous year’s taxes. The limit is calculated each year based on the previous year’s taxes and will remain in place until properties reach a property tax bill based on its current value assessment. Municipal levy changes (essentially changes to the tax rate as a result of budget pressures) are applied in addition to the limit.

The limit applies to all property in the commercial, industrial and multi-residential classes, subject to the following exclusions:

- farmland awaiting development;

- provincial and municipal property that is subject to payments in lieu of taxes (however, commercial tenants in government owned properties would be protected by the limits); and

- certain generation and transformer facilities.

The limit does not apply to property in the residential, farmland, managed forest, and pipeline property classes.

The cumulative effect of the legislation allows for unlimited transfer of tax burden to the residential class with limited transfers to the other classes due to capping, tax ratio ranges of fairness and provincial thresholds.

The analysis presented in this report has been completed by staff and MTE Property Tax Consultants using both the City’s tax system and the On-Line Property Taxation Analysis (OPTA) System. OPTA is a web-based modeling tool developed by the Ministry of Municipal Affairs and Housing (MMAH) as the tool for municipalities to use in designing property tax policy. OPTA is also the only tool currently available for us to determine the capping requirements for the capped classes.

The purpose of this report is to present recommendations regarding 2003 property tax policy issues that must be dealt with by Council prior to the end of May.

The Municipal Act requires that Council approve a number of tax policy decisions before April 30 of each year. For 2003, this deadline was extended by Provincial legislation to May 30. These decisions determine the tax burden on the various tax classes for the 2003 taxation year.

DISCUSSION

1. OPTIONAL PROPERTY TAX CLASSES

To provide maximum flexibility to Council for tax policy decision, the City of Ottawa has, in previous years, adopted all the optional tax classes in the past. Staff recommends that we continue to adopt all of the optional classes.

i) New multi-residential - This is an optional class within the Multi-Residential class.

ii) Shopping Centres - This is an optional class within the Commercial broad class.

iii) Parking Lots and Vacant Land -Commercial - This is an optional class within the Commercial broad class.

iv) Large Industrial - This is an optional class within the Industrial broad class.

v) Office - This is an optional class within the Commercial broad class.

vi) Sports Facility - This is an optional class within the Commercial broad class.

2. NEW MULTI-RESIDENTIAL TAX CLASS

This optional tax class was introduced in 2001 to encourage the construction of new multi-residential properties. The tax ratio could be different (generally lower) than the tax class for the existing Multi-Residential tax class. Council adopted this optional tax class in 2001 and set the tax ratio for the class at 1.0 for eight years. Changes in Provincial legislation in 2002 extended the eligible time period to 35 years for properties built after 2001. To provide for a consistent treatment of all properties in this class, staff recommends that Council extend the effective period to 35 years from eight years for eligible properties in the new multi-residential class constructed prior to 2002.

3. TAX RATIOS

The setting of tax ratios allows a municipality to distribute the tax burden between the various tax classes. However, the legislative framework now in place provides little flexibility to Council in distributing the burdens. Provincial legislation prevents a municipality from increasing the tax burden of a tax class, if the tax ratio is above the range of fairness set by the province. Furthermore, a levy increase (i.e. budgetary increase) cannot be passed on to a broad tax class that is beyond the provincial threshold. Table 1 shows the 2003 tax ratios recommended for Council approval (ratios are consistent with the 2002 approved tax ratios). The table also shows the restrictions set by both range of fairness and provincial threshold.

As can be seen, with very few exceptions, all of the tax ratios are above the provincial range of fairness. This situation is not unique to the City of Ottawa as most municipalities find their non-residential classes significantly beyond the ranges. The Provincial thresholds, which are close to a provincial average, demonstrate the province-wide relationship of ratios to the ranges of fairness. Since the ratios are outside the ranges of fairness, Council may not increase the tax burden of any of these tax classes by increasing their tax ratios.

Reducing the tax ratios of any of these classes would result in a transfer of tax burden to those tax classes within the ranges of fairness established by the Province. Thus, any tax burden resulting from a reduction in tax ratios would have to be absorbed by the Residential, Farmland, Managed Forest and New Multi-Residential tax classes only.

Commercial Classes

In setting the tax ratios in 2001, Council reduced the Commercial Broad Class ratio to stay within the provincial threshold. The effects of reassessed values would have resulted in the Commercial Broad Class ratio moving upward, which as noted earlier is not allowed within the regulation. The various sub-classes in the table below show reduced ratios that allow the overall Commercial Broad Class to stay at the same ratio as 2001 and 2002. This change will transfer $3.4 million from the commercial class to residential.

Multi-residential

During the tax policy discussion for 2001 and 2002 significant discussions took place surrounding the tax burden of multi-residential versus residential properties. The Task Force on Property Assessment and Property Tax Issues and Council discussions expressed the view that a multi-residential property that is similar or the same as a residential property should attract the same amount of taxes. Staff was asked to bring forward a multi-year plan that would move the multi-residential class to a level of tax burden equity.

Council has set the tax ratio for the multi-residential properties at 2.178. This means that multi-residential property pays 117.8% more than a residential property with equal assessment. The issue is further complicated by the fact that MPAC values multi-residential properties in a different manner than it values residential properties. Multi-residential properties are valued on the basis of income. The process begins with the rent delivered. The operating costs are then deducted leaving an annual income. This income is then capitalized at a fixed rate of return to determine a value. Residential properties on the other hand are assessed on the basis of their current value (sales comparison approach).

In the 2003 reassessment some tax burden has shifted from the multi-residential class to the residential class. This shift for 2003 will result in a reduction of the Multi-Residential tax burden of $2,385,474 (2.5%).

Provincial legislation requires that rents to tenants be reduced for the following year if a tax reduction exceeds 2.49%. Based on the analysis of individual accounts, the shift of tax burden

from the Multi-Residential tax class in 2003 as a result of reassessment shows that 891 of 1327 (67%) properties will have a tax decrease. Provincial legislation requires that rents to tenants be reduced for the following year if a tax reduction exceeds 2.49%. Of the properties with a tax decrease 628 (47%) have a tax decrease large enough to trigger a rent decrease. Of the 431 properties with a tax increase, 261 will experience increases but they will be limited to the 5% cap on increases provided by legislation. All other properties with increases are below the 5% cap.

Staff has undertaken previous work on determining the point at which the tax burdens of residential units and multi-residential units are equal. Work continues on the analysis to try to arrive at a valid result. Previous work however, would indicate that the ratio would be somewhere in the 1.3 to 1.8 range. On that basis any movement that is made now would only move towards the ultimate rate.

It is recommended that a plan be put in place for future years to commence the movement towards tax burden equity. In order to generate the automatic rent reduction, a tax burden reduction of approximately $2.1 million within the class needs to be generated based on existing assessed values. It is recommended that in each future year the multi-residential tax ratio be reduced by transferring sufficient burden so that the automatic rent reduction will be triggered. These reductions would continue until tax burden equity has been achieved between residential and multi-residential properties. It should be noted that a transfer of $2.1 million will result in an increase in tax burden of .5% on the residential, farm and new multi-residential classes.

For 2003 it is recommended that the multi-residential class tax burden be reduced by an additional $1 million, the tax ratio amended accordingly for 2004 and funding be taken from the provision for remissions and appeals (for 2003 only). This can be accomplished through the use the $1 million to reduce the clawbacks thus reducing the overall tax bills for most properties in 2003. For future years the change will be reflected in the tax burden of the classes within the ranges of fairness.

As noted earlier those classes within the range of fairness, being Residential, Farmland, Managed Forest and New Multi-Residential tax classes only, must absorb any reduction in the tax ratio for this class. Given the increases being experienced in the residential and farmland classes due to their dramatic increases in property values, staff does not recommend any further transfers for 2003. Since reassessment is now an annual process staff will continue to analyze the effect of the changes to assessment and make recommendations to Council accordingly.

TABLE 1

TAX RATIOS AND PROVINCIAL GUIDELINES

CLASS	2003 TAX RATIO	PROVINCIAL THRESHOLD	PROVINCIAL RANGE OF FAIRNESS
Residential	1.0000	-	1.0
Multi-Residential	2.1780	2.7400	1.0 to 1.1
New Multi-Residential	1.0000	-	1.0 to 1.1
Farm	0.2500	-	0.25 (or lower)
Managed Forest	0.2500	-	0.25
Pipeline	1.1326	-	0.6 to 0.7
Commercial Broad Class	1.9800	1.9800	0.6 to 1.1
Commercial Residual	1.8846	-	0.6 to 1.1
Office Building	2.2775	-	0.6 to 1.1
Parking Lots & Vacant Land - Commercial	1.2349	-	0.6 to 1.1
Shopping Centre	1.5676	-	0.6 to 1.1
Industrial Broad Class	2.0775	2.6300	0.6 to 1.1
Industrial Residual	2.2439	-	0.6 to 1.1
Large Industrial	1.9269	-	0.6 to 1.1

4. ASSESSMENT CHANGES

There are two types of changes to the assessment rolls for 2002 and 2003 taxation years. The first change is brought about by the increase in the value of a property from the June 30, 1999 valuation date to the new valuation date of June 30, 2001. This change to the total assessment base was an 18.33% increase (see Table 2).

TABLE 2

ASSESSMENT CHANGE BY TAX CLASS

	---------- 2002 ----------		---------- 2003 ----------		Change
Realty Tax Class	Total CVA As Revised	% of Total	Total CVA	% of Total	$	%
Taxable
Residential	35,299,640,305	66.87%	43,110,374,542	68.92%	7,810,734,237	22.13%
Farm	305,376,370	0.58%	370,098,900	0.59%	64,722,530	21.19%
Managed Forest	3,134,730	0.01%	4,990,579	0.01%	1,855,849	59.20%
Pipeline	166,226,614	0.31%	174,326,415	0.28%	8,099,801	4.87%
New Multi-Residential	10,490,000	0.02%	11,748,000	0.02%	1,258,000	11.99%
Subtotal	35,784,868,019	67.69%	43,671,538,436	69.82%	7,886,670,417	22.04%
Multi-Residential	3,310,875,925	6.26%	3,711,214,145	5.93%	400,338,220	12.09%
Commercial	4,739,409,674	8.97%	4,954,147,592	7.92%	214,737,918	4.53%
Shopping Centre	1,356,855,101	2.57%	1,535,764,180	2.46%	178,909,079	13.19%
Office Building	2,549,817,879	4.82%	3,035,870,205	4.85%	486,052,326	19.06%
Industrial	711,100,629	1.35%	753,519,145	1.20%	42,418,516	5.97%
Large Industrial	779,458,963	1.47%	786,918,020	1.26%	7,459,057	0.96%
Parking Lot	215,680,525	0.41%	242,522,015	0.39%	26,841,490	12.45%
Subtotal protected	13,663,198,696	25.85%	15,019,955,302	24.01%	1,356,756,606	9.93%
Subtotal taxable	49,448,066,715	93.54%	58,691,493,738	93.83%	9,243,427,023	18.69%
Payments in Lieu
Residential	480,761,180	0.91%	579,416,230	0.93%	98,655,050	20.52%
Farm	7,269,540	0.01%	8,602,065	0.01%	1,332,525	18.33%
Multi-Residential	30,625,080	0.06%	29,676,080	0.05%	-949,000	-3.10%
Commercial	1,245,420,690	2.36%	1,317,116,268	2.11%	71,695,578	5.76%
Shopping Centre	223,880	0.00%	197,155	0.00%	-26,725	-11.94%
Office Building	1,590,894,045	3.01%	1,857,076,153	2.97%	266,182,108	16.73%
Industrial	37,203,210	0.07%	42,074,130	0.07%	4,870,920	13.09%
Large Industrial	16,571,000	0.03%	18,559,000	0.03%	1,988,000	12.00%
Parking Lot	8,380,805	0.02%	8,879,805	0.01%	499,000	5.95%
Subtotal PIL	3,417,349,430	6.46%	3,861,596,886	6.17%	444,247,456	13.00%
Total	52,865,416,145	100.00%	62,553,090,624	100.00%	9,687,674,479	18.33%

Table 2 also shows that the average increase in CVA for the residential tax class was 22.1%. To put this increase into context the typical residential property had a CVA of about $165,000 in 2002 whereas after reassessment the typical residential property had a CVA of $200,000 for 2003.

The second type of change is that brought about by the growth in the City. This growth comes from new properties and additions and improvements to existing properties. The growth in the assessment base during 2002 for these properties was 2.88%, which was slightly higher than the growth estimated in the 2003 budget.

This higher assessment growth provides additional funds to the city of approximately $4 million. However, the assessment changes and subsequent tax shifts have reduced PIL revenue’s by $2.6 million resulting in a budgetary shortfall. Staff is recommending the remaining additional growth revenue be offset by an increase in the provision for tax remissions and appeals. The volume of assessment appeals increase significantly in a reassessment year and staff anticipates an increase in appeals and remission costs. Experience over the last two years has indicated a shortfall in the existing budget provision.

Since changes in market values differ by property tax class, the assessment will affect the allocation of tax burden between property owners. Now that assessment is an annual process the tax burden will be re-allocated every year.

TABLE 3

Analysis of changes on taxation by property class

	2002	% OF	TAX SHIFT
Taxable	TAX LEVY	TOTAL	TAX LEVY	%
Residential	$ 443,463,113	55.1%	$ 23,602,421	5.3%
Farm	$ 816,949	0.1%	$ 35,124	4.3%
Managed Forest	$ 8,035	0.0%	$ 3,145	39.1%
Pipeline	$ 2,113,295	0.3%	$ (196,898)	-9.3%
New Multi-Res	$ 139,559	0.0%	$ (3,872)	-2.8%
Sub-Total	$ 446,540,951	55.5%	$ 23,439,920	5.3%
Multi-Residential	$ 95,710,353	11.9%	$ (2,385,474)	-2.5%
Commercial	$ 122,545,400	15.2%	$ (13,967,163)	-11.4%
Shopping Centre	$ 30,286,596	3.8%	$ (1,413,000)	-4.7%
Office Building	$ 73,620,583	9.2%	$ 944,596	1.3%
Industrial	$ 17,308,976	2.2%	$ (1,413,547)	-8.2%
Large Industrial	$ 17,663,286	2.2%	$ (2,464,327)	-13.9%
Parking Lot	$ 907,645	0.1%	$ (94,440)	-10.4%
Subtotal	$ 358,042,839	44.5%	$ (20,793,355)	-5.8%
Total Taxable	$ 804,583,790	100.0%	$ 2,646,565	0.33%
PIL Properties			$ (2,646,565)
Total			$ -

According to Table 3 as a result of the assessment we see an increase of 5.3% in the weighted assessment of the non-capped classes and a 5.8% decrease in the weighted assessment of the capped classes. This means that the capped classes, which benefit from a capped annual increase in taxes of 5%, will shed some of their tax burden. The non-capped classes, which do not enjoy such a benefit, will absorb this tax burden shed by the capped classes.

The shift is significant as the capped classes shed $20.8 million; and PIL properties shed $2.6 million in tax burden, which has to be absorbed by the non-capped classes. For the residential taxpayer this means an increased tax burden of $23.4 million or a 5.3% increase in taxes to be paid as a result of the assessment.

Staff continues to work with OPTA to review the properties within the capped classes to determine the effects of capping. At this time the analysis indicates that for 2003 there will be no capping shortfalls to be funded, as was the case in 2001and 2002. In 2002, for example the capping shortfall was approximately $12 million. As well, the clawback requirement of all decreases which was required to partially fund the capping shortfalls in 2001 and 2002 will not be required. A clawback requirement will remain but will not be 100% as in prior years. The exact clawback percentages are still being calculated as staff analyzes the data. A by-law will be forwarded to Council detailing the capping clawback percentages that will be required in each of the capped classes.

Education tax rates

The final piece of the tax policy discussion is the education rate that is established by the Province of Ontario. The 2003 rates have been provided by the Province and are also affected by assessment changes. The Province calculates a common rate for all residential properties across the Province. In setting the rates the Province takes into account the assessment changes on a province wide basis. The average assessment increase province-wide was 12.08%. The City of Ottawa saw a CVA increase for the residential tax class of 22.13%. This will result in a shift of education tax to the City of Ottawa residential tax class from other properties across the province. In total an additional $21.8 million will be generated from education tax of which approximately $16 million will come from the residential class.

5. MITIGATION OF TAX IMPACTS

The residential and farm classes are experiencing the most significant increases from reassessment in 2003. Unfortunately there are few mitigation tools available to the City. One tool that is available in the legislation is a phase-in program. However, a phase-in program is not effective when reassessments are annual as is now the case. A further consideration when looking at phase in is that the phase-in program can only be funded from within the class itself. With only approximately 20% of residential properties experiencing decreases, there is not sufficient tax decreases available to cover the properties that are increasing. Discussions with other cities confirm that no one has determined how a phase-in could work with annual reassessments.

A number of mitigation programs have been established in prior years. It is recommended that these mitigation programs be continued. These programs include:

1) The provision of a 40% tax rebate to charitable organizations as defined and required in the legislation;

2) (a) 100% tax rebate to any religious organization leasing space to houses of refuge and registered charities; (b) 40% charitable organization tax rebate to Registered Canadian Amateur Athletic Associations; and (c) 100% tax rebate for non-profit, non-home based licensed child care centres for space occupied for child care purposes;

3) The provision of a vacancy tax rebate program with the rebate rate set at 30% of the tax attributable to the vacant space in commercial buildings, and 35% of the tax attributable to the vacant space in industrial buildings.

4) The provision of a tax relief (deferral) program for low income seniors and disabled.

An issue that continues to arise is the provision of rebates for organizations similar to charitable organizations. Staff receives requests for relief on an on-going basis.

Municipalities have the option of providing rebates to organizations that are similar to eligible charities (i.e., non-profit organizations). Staff had estimated that in 1997 (the last year that tenants were separately identified on the assessment roll), there were approximately 1,200 not-for-profit organizations occupying property in either the commercial or industrial property class, that were exempt from Business Occupancy Tax and were taxed at the residential rate. These include organizations such as business and professional associations, cultural associations, health-related groups, individuals and numbered companies, political parties, and special interest groups. While it is recognized that these organizations contribute to the overall well-being and economic growth in communities, the characterization of these organizations extends beyond eligible charities and as such is difficult to isolate.

As in 2002, it is recommended that the rebate program only be offered to eligible charitable organizations as defined in the mandatory provisions contained in the legislation. However, it is further recommended that the Finance Branch together with the People Services Department review the eligibility for this type of rebate for those agencies that provide services that fall within the mandate of the City and report back to Committee & Council prior to June 30th. This limits to a great extent the eligibility of the program but may provide some relief for a range of programs valuable to the City.

The Provincial government recently announced an education tax rebate program for seniors for both homeowners and tenants. While staff has no further details of this program, implementation of such a program will also provide significant relief.

6. TAX BILLING DUE DATES

Council has established the final due dates for 2003. It is unlikely that the established dates will be possible for the capped classes due to the complexities of the calculations. If the due date needs to be amended a new by-law will be forwarded directly to Council to action the change.

7. TAX RATES

The tax rates are a product of the budgetary requirement approved in January and the effects of the setting of tax ratios within this report. The resultant tax rates are summarized in Appendix A and it is recommended that these rates be approved and a by-law brought forward to Council.

CONSULTATION

The staff of Financial Services consulted Legal Services, The Ministry of Finance, Eastern Ontario Landlords Organization (EOLO) and MPAC.

FINANCIAL IMPLICATIONS

If Council adopts the recommendations as contained in this report, the following amendments will be required to the 2003 Operating Budget:

Property Taxation Revenues - $4,000,000 increase

Payments in lieu of taxation - $2,600,000 decrease

Tax Remissions - $1,400,000 increase

ATTACHMENTS

Appendix A Tax Rates

DISPOSITION

Finance will use the tax ratios and rates to calculate and issue the 2003 final tax bills.

Appendix A

City of Ottawa

2003 Tax Rates

CITY OF OTTAWA	Total	Conserv.	Urban	Rural	Urban
	City Wide	Author.	Fire	Fire	Transit
1 - Residential and Farm	0.86659%	0.00437%	0.07998%	0.02598%	0.20423%
2 - Multi-Residential	1.88743%	0.00952%	0.17420%	0.05658%	0.44481%
2A - New Multi Residential	0.86659%	0.00437%	0.07998%	0.02598%	0.20423%
3 - Commercial (occupied)	1.63318%	0.00824%	0.15073%	0.04896%	0.38489%
Vacant Units and Excess Land	1.14320%	0.00577%	0.10551%	0.03427%	0.26942%
Vacant Land	1.07016%	0.00540%	0.09877%	0.03208%	0.25220%
4- Commercial Office	1.97366%	0.00996%	0.18215%	0.05917%	0.46513%
Vacant Units and Excess Land	1.38152%	0.00697%	0.12750%	0.04142%	0.32558%
5- Shopping Centres	1.35847%	0.00685%	0.12538%	0.04073%	0.32015%
Vacant Units and Excess Land	0.95092%	0.00480%	0.08776%	0.02851%	0.22410%
6- Parking Lot/Vacant	1.07016%	0.00540%	0.09877%	0.03208%	0.25220%
7 - Professional Sports Facility	0.28592%	0.00144%	0.02639%	-	0.06738%
8 - Industrial (occupied)	1.94454%	0.00981%	0.17947%	0.05830%	0.45827%
Vacant Units and Excess Land	1.26396%	0.00638%	0.11665%	0.03789%	0.29788%
Vacant Land	1.26396%	0.00638%	0.11665%	0.03789%	0.29788%
Industrial Farm Land	0.38997%	0.00197%	0.03599%	0.01169%	0.09190%
9 - Large Industrial	1.66984%	0.00842%	0.15411%	0.05006%	0.39353%
Vacant Units and Excess Land	1.08539%	0.00548%	0.10017%	0.03254%	0.25580%
10 - Pipe Lines	0.98151%	0.00495%	0.09059%	0.02942%	0.23131%
11 - Farmlands	0.21665%	0.00109%	0.02000%	0.00650%	0.05106%
12- Managed Forests	0.21665%	0.00109%	0.02000%	0.00650%	0.05106%

	Rural Transit		Rural
CITY OF OTTAWA	OC	Para	Sewer	Fire
	Transpo	Transpo	Surcharge	Supply	Education
1 - Residential and Farm	0.02784%	0.00477%	0.16627%	0.01800%	0.33500%
2 - Multi-Residential	0.06064%	0.01039%	0.16627%	0.01800%	0.33500%
2A - New Multi Residential	0.02784%	0.00477%	0.16627%	0.01800%	0.33500%
3 - Commercial (occupied)	0.05247%	0.00899%	0.16627%	0.01800%	TBD
Vacant Units and Excess Land	0.03673%	0.00629%	0.16627%	0.01800%	TBD
Vacant Land	0.03438%	0.00589%	0.16627%	0.01800%	TBD
4- Commercial Office	0.06341%	0.01086%	0.16627%	0.01800%	TBD
Vacant Units and Excess Land	0.04438%	0.00760%	0.16627%	0.01800%	TBD
5- Shopping Centres	0.04364%	0.00748%	0.16627%	0.01800%	TBD
Vacant Units and Excess Land	0.03055%	0.00523%	0.16627%	0.01800%	TBD
6- Parking Lot/Vacant	0.03438%	0.00589%	0.16627%	0.01800%	TBD
7 - Professional Sports Facility	-	-	-	0.01800%	TBD
8 - Industrial (occupied)	0.06247%	0.01070%	0.16627%	0.01800%	TBD
Vacant Units and Excess Land	0.04061%	0.00696%	0.16627%	0.01800%	TBD
Vacant Land	0.04061%	0.00696%	0.16627%	0.01800%	TBD
Industrial Farm Land	0.01253%	0.00215%	0.16627%	0.01800%	0.15075%
9 - Large Industrial	0.05364%	0.00919%	0.16627%	0.01800%	TBD
Vacant Units and Excess Land	0.03487%	0.00597%	0.16627%	0.01800%	TBD
10 - Pipe Lines	0.03153%	0.00540%	0.16627%	0.01800%	1.73668%
11 - Farmlands	0.00696%	0.00119%	0.16627%	0.01800%	0.08375%
12- Managed Forests	0.00696%	0.00119%	0.16627%	0.01800%	0.08375%

4. 2003 TAX RATIOS and other tax policies

RATIOS D’IMPÔTs 2003 et autres politiques sur les IMPÔTs

ACS2003-CRS-FIN-0019

That the Corporate Services and Economic Development Committee approve the addition of this item for consideration by the Committee at today’s meeting, pursuant to Section 82(3) of the Procedure By-law (being By-law No. 2002-247).

CARRIED

Lloyd Russell, Director, Financial Services Branch, Corporate Services Department, provided the Committee with a brief overview of the staff report. A copy of Mr. Russell’s PowerPoint presentation is held on file with the City Clerk.

Mayor Chiarelli referenced Recommendation 6 and asked if this would change the ratio for multi-residential. Mr. Russell replied it would not for this year but it would move the ratio back in future years. He said the intent of this recommendation is to begin to move the two property classes towards a more equal tax burden and that it be done in amounts that would generate the automatic rent reduction. He said staff did not put specific numbers in because each year the values will change; by setting it out in this manner, a target will be set that will equate to a minimum of a 2.5% reduction.

Mayor Chiarelli questioned if the recommended $1 million to accommodate the multi-residential would generate a flow-through benefit to the tenants. Mr. Russell advised it would provide the flow through benefit provided that the tax decrease is 2.5% or greater. As indicated in the report, approximately 47% of the properties would see a reduction that would flow through to rent; the other properties would not (i.e. it depends on the change in assessed value for those properties).

The Mayor then asked if there was an option this year just to change the ratio. Mr. Russell responded this could be done. However, if the ratio is changed, it would flow back through the other tax classes. Mr. Russell also confirmed for the Mayor that it is staff’s belief that their recommendation would result in more of a flow-through to the tenants, than if the ratio were changed. He said the use of the $1 million dollars for this year, outside the tax ratio, would reduce the “clawback” within the class. He said the clawback occurs because some properties in fact have increased values on the multi-residential properties and those increases are in excess of 5%. When they are, the most the City can tax to that property is a 5% increase. The amount that cannot be taxed there is then clawed back from those that are decreasing. If we were to fund the clawback, we would be increasing the amount of decreases that are already in place. He said it was his belief that this would benefit more renters than it would by putting it through the ratio.

Mayor Chiarelli noted this was a very complicated issue and really, the only thing that counts to most people is “how much and when”. He asked staff for an estimate, based on what is in the report and on the resolutions provided to the City by landlord group, of the annual decrease in rent for an apartment renting for $900 per month.

Ken Hughes, Manager, Revenue, Financial Services responded there are some 1300 multi-residential properties in the City and each has a unique tax situation. He said it was almost impossible, without knowing the specific information for each, to determine what the effect would be on the individual tenants. Responding to the Mayor’s request for an estimate, Mr. Russell replied if it is assumed that 20% of an average rent equates to taxes, then the tax portion on a $900 per month apartment would be $180 per month. He said therefore the 2.5% change in tax ratios (as is recommended by staff) would be about $4.50 a month or $54 a year. He pointed out the recommendation that came from the landlords’ group for 2004 and on, is about twice that.

The Mayor asked what the difference would be this year between doing it by ratios and by doing it by way of the $1 million. Mr. Russell advised this could not be calculated as a generality. He said each property that is decreasing would have to be reviewed to determine the difference.

Mr. Kirkpatrick stated conceptually, the million dollars under the staff proposal would go towards reducing the reduction that 47% of the properties are experiencing. He said the $1 million would be funnelled towards those properties, which would drop those reductions further and also staff would have to take a look at the distribution of those and find out how many are already below 2.5% and how many would be brought down below the 2.5% through the use of the $1 million. He said this information could be generated for Council consideration.

Mayor Chiarelli pointed out the shifting tax burdens from other classes to residential, does not provide the City with new revenue. It simply makes different taxpayers pay for it in different proportions. Mr. Russell confirmed this. As well, he also confirmed for the Mayor that in terms of Payment in Lieu of Taxes (PIL’s), this system is generating a $2.6 million tax cut for what the Federal Government pays to the City in payments in lieu of taxes and shifting it on to the residential tax base.

Councillor Bellemare asked if staff had calculated what the impact would be on the average homeowner in Ottawa, if the City were to move immediately towards what the Province thinks would be fair taxation levels for all the tax classes. Mr. Russell advised this had not been done, but indicated this could be calculated prior to consideration of this matter by Council.

Councillor Bellemare then had questions concerning the status of the Property Tax Stabilization fund. Mr. Russell advised there is very little if any balance remaining in this reserve fund (he estimated the amount was perhaps $1 million). He noted this reserve had been used in the last two years to fund the gapping shortfall that existed in the commercial and industrial classes. Had this not been done, those taxes would have been transferred onto the residential taxpayer. He said this was not really a source available to the City at this time; however, different ways of putting money into this reserve could be looked at (e.g. through budget or by allocating any operating surpluses to it). Mr. Russell felt this reserve could be used as a tool to mitigate some of the more minor shifts on an annual basis.

Mayor Chiarelli noted there are two portions to the tax bill; one of which is the education tax portion and it is a Provincial responsibility. He felt it was important that when people analyze the tax bill, they understand how the two portions work and how that portion may go up or down as well. He asked the General Manager, Mr. Kirkpatrick what assessment is doing to the education portion of the tax bill and how it is impacting on the tax bill this year and how it will impact next year.

Mr. Kirkpatrick responded this is a separate issue, in that it deals with Provincial education property taxes versus municipal property taxes. He stated the Province raises an amount of funding for education purposes every year from both commercial and residential property taxes and the tax rate applied against residential properties is the same across the Province. He said in Ottawa, because the value of residential properties as a whole has increased far greater than residential values across the Province, there is a shift of Provincial education property taxes towards this community. This equates to something in the order of $16 million more than it did last year. He said if the trend continues, the same dynamic will occur next year.

Responding to questions from Councillor C. Doucet, Mr. Russell advised the City can budget for next year based on its overall operation needs but what is not known (at the time of budget) is what the Provincial assessments and shifts will be. He confirmed the City could very well be in the very same situation next year. Mr. Russell indicated it would be much better if the assessment information could be made available much earlier so that the two processes can be tied together.

Councillor Doucet then commented that he was concerned with service fairness. He stated his ward pays twice as much as any other ward in the City and although, he cannot do anything about them paying more, he can do something about the level of service they receive. He said his is one of the older wards in the City with aging infrastructure in need of repair or replacement and he indicated he would be coming forward in the next budget cycle requesting funding for that infrastructure.

Councillor Cullen noted staff had not indicated when it could be expected that the multi-residential rate will reach 1.8% (i.e. the range of 1.3% to 1.8% is when the tax burden equalizes out). Mr. Russell replied this is not known because of the change in values every year. He said staff are proposing that mitigation be at least enough to trigger the 2.5% decrease and he felt the commitment to make the move is the critical issue.

Mr. Russell also noted there was a recommendation contained on page 7 of the report (i.e. “For 2003, it is recommended that the multi-residential class tax burden be reduced by an additional $1 million, the tax ration amended accordingly for 2004 and funding be taken from the provision for remissions and appeals (for 2003 only)”. He said this $1 million would be used to reduce the clawback situation and this recommendation should be brought forward into the recommendations.

Councillor Cullen noted this would result in a 2.178 tax ratio. He asked, if there was a movement to set the ratio at 1.8 today, would this not trigger the flow-through to tenants. Mr. Russell confirmed it would but advised it would transfer the burden to residential.

Councillor Cullen questioned if it was within the power of the Corporate Services and Economic Development Committee to go from 2.178 to 2. Mr. Russell confirmed it was. Councillor Cullen said although there is never a good time to redress a tax inequity, he felt strongly it had to happen. He stated for the benefit of people who came last year expecting this Council to make a move, it is incumbent upon us to accept a target and begin taking steps. He expressed his hope the Committee would do so today.

Responding to questions from Councillor Stavinga, Mr. Russell advised the only way the $1 million could be applied to residential is to reduce the overall tax requirement by $1 million; residential would see 55% of that and multi-residential would see 12% of it. To maximize the effect on multi-residential (as has been suggested should happen) the ratio would have to be changed and this will result in a change of burdens amongst the classes.

Councillor Stavinga asked if it was possible to commit to a strategy reduction of 1.8 with a timeframe (i.e. 2005). She said this would allow staff the flexibility to come back to Committee and Council as time progresses to determine the conditions. The Councillor felt people do not believe there is a commitment when they don’t see an end target. Mr. Russell stated Committee and Council could certainly establish those targets and a time frame and direct staff to carry them out. He said staff put this recommendation in front of Committee as a start to the movement towards that goal. If the committee wishes to be more definitive for the future years staff would take that direction.

Councillor Stavinga asked where the City of Ottawa stood compared to other cities in Ontario in terms of the range of fairness. Mr. Russell advised the ranges vary greatly across the Province - some higher and some lower. He said for example, Toronto’s ratio of 4.17 is beyond the Provincial threshold, while the Region of Peel is at 1.73.

Councillor Stavinga asked what the impact would be on the residential class (i.e. per household), if the $1 million is used this year (to address the clawback) and a target of reaching the 1.8 tax ratio for 2005. Mr. Russell advised the shift to achieve a ratio of 1.8 would require $13.2 million (in addition to the $1 million) over the two years. This would translate to 1.5% or $30 per household.

Councillor McNeely noted there was something in the Provincial budget that would exempt seniors from education taxes and this would represent about $15 to $30 million for Ottawa. He asked if there was any indication from the government where they would be putting that deficiency in revenues. Mr. Kirkpatrick advised he had no additional information on this.

Councillor Chiarelli noted a local MPP has been telling members of the public that all the City has to do to prevent this from happening is to cut the 5% that the property tax on homeowners represents. Mr. Russell confirmed this 5% equates to $23 million but advised if the City were to do this (i.e. through the budget requirement), the budget requirement would have to be reduced by $41 million. He confirmed this would only bring the residential class to the same amount as they paid last year but they would receive $41 million less in service as a result.

Councillor Chiarelli then commented on the shift of tax burden from the rest of Ontario to Ottawa homeowners on Provincial education tax. He asked whether the Province intends to take its own advice and reduce its operations by $16 million in order to rebate that money which it is levying to Ottawa homeowners. Mr. Russell advised he had not received any correspondence to that effect.

Mayor Chiarelli noted Regional Council and the new City have been addressing the disproportionate ratio (i.e. multi-residential pays almost twice that of residential) through new construction, so that if a new apartment unit has been build over the last three or four years it is on a 1:1 basis. He stated presumably the rents have been adjusted for that. Mr. Russell confirmed this was the concept. The Mayor then asked how those multi-residential units who are already on the 1:1, would be impacted by the changes being proposed. Mr. Russell advised the changes being proposed for multi-residential would have no effect on those new properties because they are in a different class. However, to the extent that there is a tax shift, they will have to bear some of that tax shift.

The Mayor also questioned if tenants in the new multi-residential class, paying market rent, were in effect subsidizing the landlords. Mr. Kirkpatrick responded that theoretically, if a tenant is paying market rent for a new unit (i.e. the same rent that a tenant is paying in a unit that was built 14 years ago) and the developer is paying a property tax based on the new property tax class at a ratio of 1:1 instead of the multi-residential ratio, the difference in property taxes being paid is going into the business case of the developer of that new multi-residential building. Mr. Russell added the intent of the legislation was to provide a lower tax burden and rate so that rents could be more affordable.

Councillor Meilleur advised she had read that one of the reasons for the reduction of the multi-residential taxes was to encourage the construction of new multi-residential units. She said the Minister responsible had not responded to this but she could not understand how this would stimulate multi-residential growth. Mr. Russell stated he could not answer this. However, he pointed out the City has adopted the new multi-residential tax rate; if it did not have this separate class, the comment would be more in line.

The Councillor then asked if other municipalities had adopted the new multi-residential tax ratio. Mr. Russell stated he believed Ottawa was the first to adopt this in late 2000 but there are other municipalities in Ontario who have also adopted this class.

Responding to further questions from Councillor Meilleur, Mr. Russell stated Council has expressed a desire for greater equity between the two classes (i.e. residential and multi-residential) and the Province as well would like to see this happen (i.e. through their policy direction).

The Committee then heard from the following public delegations.

Mrs. Le Thi An advised she was a resident of Ottawa (Riverside Drive) and a tenant in Minto owned building. She urged the Committee to approve a tax decrease for multi-residential properties.

Luigi Caparelli, Landlords and Tenants for Fair Taxation appeared before the Committee and was accompanied by Jane Ready, a tenant on Richmond Road; Jerome Goynton, a tenant on Alta Vista Drive; and Fran Gowing, a tenant of Minto Herongate. A copy of this group’s submission is held on file with the City Clerk.

Mr. Caparelli stated the issue of inequity between the residential classes has been on-going for many years. He noted that both the Ontario Fair Tax Commission in 1993 and the City of Ottawa’s Task Force on Property Assessment and Property Tax Issues in 2001 agreed there was no justification for a distinction in tax rate between the residential classes. He also pointed out the City’s Task Force had recommended that the City of Ottawa adopt the strategy to reduce the multi-residential tax ratio beginning in 2002 to reach an equivalent tax burden for similar residential properties within two years. Mr. Caparelli said he was before the Committee last year asking them to adopt the Task Force’s motion and was advised that although it was too late for 2002, it would be done for 2003. It is now 2003 and again the staff report does nothing to that ratio; the recommendations in the staff report indicate that the ratio will remain the same for this year and perhaps move next year.

The speaker went on to say he had calculated that to achieve a tax ratio of 1.8, which is the upper end of what the City calculates the range of fairness to be based on tax burden (i.e. a range of between 1.3 to 1.8), would require a shift in taxes of approximately $16 million apart from any reassessment shifts. A tax ratio of 1.3 would require a tax shift of about $37 million. The cost per residential household (i.e. approximately 220,000 households) would be between $72 and $168 in total. The excess tax burden on tenants is somewhere between a $190 and $435 per year. Mr. Caparelli said the $1 million staff have recommended be used as a step to solving the problem, works out to about $4.54 for each residential household for the entire year. He felt this to be a very minute amount and opined the average household in Ottawa, when made aware of the current unfair tax situation, would not consider this fair. As well, the $1 million would result in savings to only 47% of tenants in the City and he questioned what about the other 53% of the tenants. Mr. Caparelli stated his group was looking for a change in the tax ratio as this is the only thing that tenants can be assured will be a lasting improvement in their status.

John Dickie, Eastern Ontario Landlord Organization (EOLO) provided members of the Committee with written documentation and this is held on file with the City Clerk. Mr. Dickie stated that proceeding by way of the clawback (as recommended by staff) deepens the tax decrease and thus the rent reduction, but it does not broaden it. He noted Mr. Russell had said those properties that already have decreases, will get a bigger decrease (i.e. the 47% of the tenants). It would also move a few tenants from being below the threshold to beyond the threshold so it would broaden the rent reductions by 5%. He said proceeding by way of the ratio on the other hand, moves all of the properties down. If the City were to move all of the properties down by $2.1 million, it would move them down by just under 2.5% and would broaden the rent reductions. Mr. Dickie said EOLO was recommending this approach be used. As well, the landlords are willing to work on dealing with the issue of the threshold in order to broaden the rent reduction still further.

Mr. Dickie noted Mr. Russell had provided the figure of $14 million to reach the 1.8 ratio. He said his organization’s concern was that it would take 14 years to reach this ratio if only $1 million is applied every year. He urged the Committee to deal with this anomaly now and not drag it on. Mr. Dickie stated he had liked the suggestion from Councillor Stavinga with regards to setting an interim target of 1.8 and a target year. He referenced page three of his submission and noted EOLO were recommending the City proceed by way of a schedule in terms of the multi-residential tax ratio. They were proposing three steps of equal size to reach 1.8 by the year 2005 and then further steps, depending on the result of the staff analysis, to reach equal tax burden.

Mr. Dickie referred to a comment made by Mr. Caparelli, regarding the proposal of the $1 million, which equates to $4.50 per residential household. He said landlords understand the budget problem the City has but he noted he had sat on the City’s Task Force on Property Tax where numerous residents were asked their opinion on the situation of tenants paying more taxes than single-family residences. The homeowners were surprised and felt this was unfair. Mr. Dickie said he realized the difficulty of adding a tax increase but his group was asking Council to take a leadership role to explain to homeowners that it is being done to achieve fairness. He felt the residents of Ottawa are more fair than $4.54 and he hoped the Committee would agree and make it happen.

Councillor Cullen noted there had been some talk, because of the nature of the reduction and the system, the 2.5% trigger may not happen for all buildings. He asked if this had been considered by the EOLO. Mr. Dickie said it is very clear that under the current regime, there are about 40% of buildings that will face a tax increase and about 15% will face a tax increase of 5%. That is additional money a landlord will have to pay and many will apply to increase rents because of that increased cost. Proceeding by way of the clawback does not solve that problem. He said proceeding by way of the ratio ameliorates the problem because by moving down it would move the landlord at 5% down to 2.5% and then he might “eat” the cost or absorb it out of the guideline increase and not apply to increase the rent.

Referencing the documentation provided by Mr. Dickie, Councillor Cullen noted the chart on page 3 has the reduction going from the current 2.178 to 1.8 in 2005 (the upper range). He asked how the City could ensure the reductions year by year are passed on to tenants. Mr. Dickie indicated EOLO would ensure the reduction in property taxes (i.e. the portion below the threshold) would flow through to the tenants. He said they have twenty major landlords and EOLO has worked with them extensively, provided forms, organized a campaign and they know they have to do it and they do. As well, EOLO has done an outreach campaign with a mailing to all of the multi-residential landlords, setting out the reductions and reminding them that the law requires them to reduce the rents.

Councillor Stavinga noted in the delegation’s documentation, one of the schedules attached brings the ratio down to 1.0. She said from Mr. Dickie’s presentation, she had the impression he was prepared to concede that the tax ratio of 1.8 is an appropriate target. Mr. Dickie responded it was an appropriate interim target but would not agree that 1.8 is the final target. Staff are saying that the final target is somewhere between 1.3 and 1.8. The EOLO is saying use the 1.8 as the interim target and then staff will have two or three years to do the studies and determine what the appropriate target should be.

Councillor Meilleur questioned how long the tax reduction would be passed onto tenants. Mr. Dickie responded it goes into the rent and with a sitting tenant, the rent cannot be increased by more than the guideline. He noted with the turnover rate, it is the same units (i.e. 20%) that turn over year and year again. Many tenants live in their apartments (particularly seniors) for many years and this is the portion of the population that has lower, fixed incomes.

Councillor Chiarelli asked staff what options would be available to Council in the event the landlords do not flow through the shift. Mr. Russell stated his understanding is that if the reduction of 2.5% or more, they have to flow-through the reduction and the recourse is through the rent review tribunals. He said he was not certain Council would have an active role in this process. There is a notification process that is required and staff work with the landlords on notifying the tenants of those properties that do receive a 2.5% reduction so that they are aware of it; then it is more or less in the tenants hands.

Councillor Chiarelli asked what options would be available to Council next year, when ratios are considered. Mr. Russell said if it is believed that the landlords did not pass the reductions on to tenants, Council could change their decision on the ratios.

Councillor Chiarelli asked if a motion setting out that if landlords do not flow through the ratio from multi-residential to residential that Council address this next year during consideration of ratios, would be in order. Mr. Russell confirmed it would be but noted it had been his experience that they do in fact pass the reductions on in accordance with the legislation.

Having heard from all public delegations, the Committee began deliberation of the matter.

Mayor Chiarelli noted before the Committee were the staff recommendations, plus an additional recommendation from staff from page 7 of the report. As well, the Mayor noted the following motions had been put forward.

Moved by Councillor M. Bellemare

That staff identify payments/contributions to the Property Tax Stabilization Fund in future draft budgets in order to build a reserve fund that could mitigate against annual shifts in tax burdens from one tax class to another.

Moved by Councillor J. Stavinga (on behalf of Councillor Cullen)

That City Council set the multi-residential tax ratio for the 2003 tax year at 2.000.

From Councillor A. Cullen

That in recognition of the inequity in property tax burden between tenants in the multi-residential buildings and their residential counterparts, City Council approve, in principle, achieving a reasonable balance in property tax burdens between residential and multi-residential sectors, and as a means of achieving this, Council will set a target ratio of 1.8 for the multi-residential tax class for 2005, with the adjustments to begin achieving this target in 2004.

Moved by Councillor J. Stavinga (as a replacement for Councillor Cullen’s second motion; Councillor Cullen subsequently withdrew his second motion)

Whereas, the Ontario Fair Tax Commission in 1993 recommended that all residential property should be assessed on the same basis whether the property is occupied by an owner or a tenant;

Whereas, the City of Ottawa Task Force on Property Assessment and Property Tax Issues recommended that the City of Ottawa, on the basis of fairness, and benefit principle, adopt a strategy to reduce the multi-residential ratio to reach an equivalent tax burden for similar residential properties;

Therefore be it resolved that CSEDC recommend Council approve the development of a strategy to reduce the multi-residential ratio to a target 1.8, to reach an equivalent tax burden for similar residential properties by the year 2005 - while ensuring the transfer of sufficient burden so that the automatic rent reduction will be triggered.

The Mayor indicated the Committee would deal with Councillor Cullen’s first motion, as moved by Councillor Stavinga.

Councillor Cullen thanked Councillor Stavinga for moving this motion on his behalf. He noted this was an important issue for his ward and for the City as a whole that has been on-going for some time and he felt the Committee should act on it today. The Councillor stated the City has been “sandbagged” by Provincial policy that it has no control over; however, this should not prevent the City from acting on this inequity. He noted the impact would be approximately $30 on the average home and he felt this was a small step in dealing with something that has to be dealt with.

Responding to questions from the Mayor, Mr. Russell advised that with a ratio of 2.0 (without the $1 million mitigation measure), the cost to the residential tax base would be $6.9 million (i.e. a 1.5% increase on residential).

Councillor Hume questioned why the $1 million (proposed to increase the benefit for multi-residential) would not be used to lower the tax rate. Mr. Russell responded that he was not aware of a way to do this, because residential is the rate which triggers all other tax rates. He explained that the $1 million would be used for the clawback this year; the ratios would be changes for next year, which would load it onto the residential but does not affect this year’s tax rates.

Councillor Stavinga stated although she was moving Councillor Cullen’s motion to get it on the floor, she said given the circumstances the City is facing this year, she could not support it.

Councillor Bellemare indicated the City can simply not afford to reduce the tax rate for multi-residential this year because of the huge shift in tax burden from commercial class to residential tax class. He said this would compound the burden on homeowners this year and felt that even phasing it into 2005 may be too fast. The Councillor indicated he would support the staff recommendations, which will trigger rent reductions on an annual basis and create a plan to reduce the burden on the multi-residential class.

Councillor Hume noted that one of the hallmarks of this Council has been its ability to discuss and debate issues in an effort to drive out some of the historical inequities the City has inherited, so that people are paying the true costs of services they are receiving. He said it is necessary to try to develop a plan that gives some sense of equality and that is what the tax system was supposed to be about when we moved to equal value assessment. The Councillor said the unfortunate thing is the Committee is dealing with $30 on top of $150 for residential. He said it was unfortunate that the $1 million could not be used for a tax rate reduction for residential as he felt this would have sent a strong message to the tenant community that the City is serious about driving the inequities out of the tax system.

Moved by Councillor J. Stavinga

That City Council set the multi-residential tax ratio for the 2003 tax year at 2.000.

LOST

YEAS (0):

NAYS (7): Councillors H. Kreling, J. Stavinga, M. Bellemare, M. Meilleur, P. Hume, P. McNeely and Mayor R. Chiarelli

Speaking to his motion, Councillor Bellemare opined the Province has done a wonderful job of injecting uncertainty into our regressive property tax system. The reality is the City’s problems go beyond the uncertainty that comes with big fluctuations in tax burdens between property classes based on property values. He said there is clearly a Provincial agenda to increase property tax burden on homeowners. The Councillor felt it was incumbent on the City to be aware of this Provincial agenda and to play a role in cushioning the blow to homeowners. For this reason, Councillor Bellemare stated he was presenting this motion to build a reserve to address these tax shifts that will occur on an annual basis.

Responding to questions from Councillor Stavinga, Mr. Russell confirmed that such a reserve fund would have to be funded by taxpayers in one way or another. As well, he confirmed it would be helpful for Council to pass a resolution asking for the return of the assessment roll and the completion of all Provincial regulations by November of the preceding year.

Councillor Hume indicated the wording of such a resolution should be very clear in terms of what the City is requesting. Councillor Stavinga suggested that she would work with Mr. Kirkpartrick, Mr. Russell and Councillor Hume to prepare a motion with the appropriate wording, prior to this matter being considered by Council.

In response to questions from Mayor Chiarelli, Mr. Kirkpatrick suggested it would be appropriate to discuss Councillor Bellemare’s motion when Council sets its budget directions. Mayor Chiarelli asked if Councillor Bellemare would accept an amendment to his motion, referring it to the budget directions process.

Councillor Bellemare stated he did not feel his motion needed to be referred to the budget process. The motion simply gives direction to staff to establish contributions within the draft budget, but it does not set any amount (as this would be set during the budget process on a yearly basis). He felt it was necessary to provide staff with this basic direction on this issue now.

Councillor Kreling indicated he would be supporting Councillor Bellemare’s motion as he felt it advisable to have this type of process in place in the City’s budget. The Councillor felt that pushing $23 million onto the residential property tax class was absolutely ridiculous. He felt Councillor Bellemare’s motion addressed this problem the City is confronted with, given the regulations imposed by the Province. He also suggested it should perhaps be supplemented by a request to the Province to provide some avenue of dealing with these types of situations.

Councillor Stavinga advised she was putting forward a motion of referral for Councillor Bellemare’s motion. She said although she appreciated what the Councillor was trying to do, she was concerned this would merely be a band-aid solution.

Councillor Hume stressed the importance of every municipality and every organization (e.g. the Large Urban Mayors Caucus, Association of Municipalities of Ontario, etc.) lobbying the Province, saying there is a problem with this tax system. He also felt it would be helpful to have a staff report outlining the challenges faced, so that this could be put before the Province.

Councillor Meilleur echoed the comments made by Councillor Kreling, with respect to this being a very difficult situation that impacts people’s lives. The Councillor stated she would support the recommendations to reduce the ratio for multi-residential, if she could be assured the money would go back to the tenants. She indicated she would support Councillor Stavinga’s motion as she felt it important to indicate the City is moving forward and she wanted to see something that would soften the blow to homeowners.

Moved by Councillor J. Stavinga

That the following motion from Councillor Bellemare be referred for further investigation to staff to analyse the benefits and/or consequences of implementing such a reserve fund with a report to come forward to Corporate Services and Economic Development Committee during deliberations on the budget guidelines:

“That staff identify payments/contributions to the Property Tax Stabilization Fund in future draft budgets in order to build a reserve fund that could mitigate against annual shifts in tax burdens from one tax class to another.”

CARRIED with Councillors Kreling and Bellemare dissenting.

Councillor Stavinga asked staff if her motion were approved, if it would be appropriate to remove the words “the tax ratio amended accordingly for 2004” from the additional staff recommendation. Mr. Russell confirmed this would be appropriate.

Mayor Chiarelli said although he understood the intent of Councillor Stavinga’s motion, he felt it would tie Council’s hands too much and as well, he believed staff should have the leeway to come forward with options and not be bound to work within the 1.8 target. The Mayor also stressed the importance of knowing what the implications would be for different property tax classes. For these reasons, he stated he would not support the motion.

Councillor Stavinga felt her motion was worded so as to acknowledge that circumstances could change. She felt it necessary for the City to set a target and move forward and she encouraged the Committee to support her motion.

Moved by Councillor J. Stavinga

Whereas, the Ontario Fair Tax Commission in 1993 recommended that all residential property should be assessed on the same basis whether the property is occupied by an owner or a tenant;

Whereas, the City of Ottawa Task Force on Property Assessment and Property Tax Issues recommended that the City of Ottawa, on the basis of fairness, and benefit principle, adopt a strategy to reduce the multi-residential ratio to reach an equivalent tax burden for similar residential properties;

Therefore be it resolved that CSEDC recommend Council approve the development of a strategy to reduce the multi-residential ratio to a target 1.8, to reach an equivalent tax burden for similar residential properties by the year 2005 - while ensuring the transfer of sufficient burden so that the automatic rent reduction will be triggered.

LOST

YEAS (3): Councillors J. Stavinga, M. Meilleur and P. Hume

NAYS (5): Councillors H. Kreling, R. Chiarelli, M. Bellemare, P. McNeely and Mayor R. Chiarelli

Mayor Chiarelli then read a motion put forward by Councillor Kreling to indicate the City’s concerns with the Tax Policy Regulations and requesting greater flexibility in dealing with taxation fairness and inequities. The Mayor advised that the Large Urban Mayors Caucus at a conference in March took a very strong position against the current capping and ratio regulations and requested the Province to make changes. He said Councillor Kreling’s motion reinforced LUMCO’s request and he urged the Committee to support it.

Moved by Councillor H. Kreling

Whereas the City of Ottawa total tax requirement for 2003 is as it was in 2002, yet the assessment and tax policy regulations of the current Provincial Legislation causes a $23 million shift to the residential class of properties,

Therefore that Corporate Services and Economic Development Committee recommend that Council indicate to the Province the current tax policy regulations are too restrictive and non responsive to our current needs; and

That Council ask the Province to amend the tax policy regulations to provide municipalities with greater flexibility in dealing with taxation fairness and inequities.

CARRIED

The Mayor then read a motion put forward by Councillor Chiarelli - “That if landlords do not flow through the ratio shift from multi-residential to residential, that Council address that fact next year during consideration of ratios.”

Councillor Cullen, on a point of order, offered that this motion had no effect because there is no reduction going through this year for Council to look at next year.

Mayor Chiarelli asked, if the decisions being made by the Committee that will result in a tax reduction for multi-residential and a tax increase for residential, what the process would be to determine when that will flow-through as a rent reduction to tenants. Mr. Huges advised staff communicate with the large landlords and all of the tenants in the buildings that are affected and it is indicated to them that they have an automatic rent reduction of a certain percent to start January 1, 2004.

The Mayor said given that this information will be available to Council when it deliberates this issue next year, he was ruling the motion in order.

Moved by Councillor R. Chiarelli

That if landlords do not flow through the ratio shift from multi-residential to residential, that Council address that fact next year during consideration of ratios.

CARRIED

Councillor Stavinga indicated she was moving the additional staff recommendation.

Moved by Councillor J. Stavinga

That for 2003, the multi-residential class burden be reduced by an additional $1 million, the tax ratio amended accordingly for 2004 and funding be taken from the provision for remissions and appeals (for 2003 only).

CARRIED

The Committee then approved the staff recommendations, as amended.

That the Corporate Services and Economic Development Committee recommend Council approve:

1. The use of the following optional property classes: the shopping centre commercial property class, the parking lots and vacant lands commercial property class, the office building commercial property class, the large industrial property class, the new multi-residential property class, and the professional sports facility class;

2. The extension of the eligibility for the New Multi-Residential tax class from 8 years to 35 years for all properties that were constructed prior to 2002 to be consistent with those properties built in 2002 and later.

3. The adoption of the following tax ratios for the 2003 tax year:

Residential	1.0000
Multi-Residential	2.178
New Multi-Residential	1.0000
Farm	0.2500
Managed Forest	0.2500
Pipeline	1.1326
Commercial Broad Class	1.9800
Commercial-Residual	1.8846
Office Building	2.2775
Parking Lots and Vacant Land – Commercial	1.2349
Shopping Centre	1.5676
Professional Sports Facility	N/A
Industrial Broad Class	2.0775
Industrial – Residual	2.2439
Large Industrial	1.9269

4. The adoption of the following tax ratios for the mandatory property subclasses:

commercial excess land (i.e. commercial, office and shopping centre tax classes)—70% of the applicable commercial property class tax ratio;

vacant industrial, large industrial and excess land—65% of the applicable industrial property class tax ratio;

farmlands pending development class I—45% of the residential property class tax ratio;

farmlands pending development class II—no discount.

5. That the tax rates detailed in appendix A be approved.

6. That in each future year the multi-residential tax ratio be reduced by transferring sufficient burden so that the automatic rent reduction will be triggered.

7. That the mitigation programs currently in place and detailed in this report be continued for 2003.

8. That the Finance Branch together with the People Services Department reviews the eligibility criteria of a rebate program for organizations similar to charitable organizations and report to Council before June 30^th.

9. That for 2003, the multi-residential class burden be reduced by an additional $1 million, the tax ratio amended accordingly for 2004 and funding be taken from the provision for remissions and appeals (for 2003 only).

10. That if landlords do not flow through the ratio shift from multi-residential to residential, that Council address that fact next year during consideration of ratios.

11. That Council indicate to the Province the current tax policy regulations are too restrictive and non responsive to our current needs; and

That Council ask the Province to amend the tax policy regulations to provide municipalities with greater flexibility in dealing with taxation fairness and inequities.

CARRIED as amended

That the following motion from Councillor Bellemare be referred for further investigation to staff to analyse the benefits and/or consequences of implementing such a reserve fund with a report to come forward to Corporate Services and Economic Development Committee during deliberations on the budget guidelines:

“That staff identify payments/contributions to the Property Tax Stabilization Fund in future draft budgets in order to build a reserve fund that could mitigate against annual shifts in tax burdens from one tax class to another.”

CARRIED