TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on July 21 and 23, 1998

STRATEGIC POLICIES AND PRIORITIES COMMITTEE

REPORT No. 13

1Residential Property Class - Phase-In Policy

2Multi-Residential Property Class -Tax Policy Options

3Property Tax Relief for Low-Income Senior sand Disabled Persons

4Commercial and Industrial Property - Tax Policy Options

5Property Tax Rebates for Charitable and Similar Organizations

6Tax Shifts - Effect of Changes to Transition Ratios

7Other Item Considered by the Committee

City of Toronto

REPORT No. 13

OF THE STRATEGIC POLICIES AND PRIORITIES COMMITTEE

(from its meeting on July 14, 1998,

submitted by Mayor Mel Lastman , Chair)

As Considered by

The Council of the City of Toronto

at its Special Meeting

on July 21 and 23, 1998

1

Residential Property Class - Phase-In Policy

(City Council at its Special Meeting on July 21 and 23, 1998, adopted the following recommendations:

"It is recommended that:

(1)the report (undated) from Mayor Lastman, entitled 'Residential Property Class- A Compromise Proposal', embodying the following recommendation, be adopted:

'It is recommended that, in order to allow individuals time to adjust their financial affairs, the increases and decreases related to property tax reform with respect to residential property tax reform be phased-in over a five-year period in combination with an annual minimum payment of $300.00 for tax increases and an annual minimum payment of $200.00 for tax decreases.';

(2)an arm's length municipal office be set up immediately to help the City's taxpayers to appeal their property tax assessment;

(3)the Assessment and Tax Policy Task Force be instructed to work towards a recommendation that a portion of one's property taxes be based on income;

(4)WHEREAS, the stated purpose of any proposed phase-in program is to help long-term home owners 'get used to the idea of paying more' and to prevent seniors, disabled and low or fixed-income residents from losing their homes because of inability to pay their new increased tax rates;

NOW THEREFORE BE IT RESOLVED THAT the City of Toronto Council petition the Province of Ontario to pass legislation allowing that, upon the change of ownership on or after January 1, 1999, of any residential property, any tax increase or decrease become immediately effective at its full new rate for the new owner, and excluding those changes where title passes through the death of one or more partners in a home where the title is held by a joint-tenants-in-common agreement held prior to July 1, 1998; and excluding those joint-tenants-in-common agreements where title passes from parent to child, unless the child has already reached the age of55;

(5)the Province of Ontario be requested to provide legislation to allow the phase-in for decreases in effect be for three years and the phase-in for increases be for five years with the thresholds recommended in the report from Mayor Lastman; and further that the Province be requested to provide a one-time grant in the amount of the differential between the phase-in of the increase and the decrease;

(6)the Province of Ontario be requested, for those instances where building permits are issued for changes to existing residential buildings, to implement the same procedure that is followed for non-residential buildings which is that a partial reassessment be carried out when the Province is informed of the value of the building permit, and a full assessment be carried out when the building permit is closed;

(7)Council petition the Province of Ontario for additional tax tools for setting residential property tax rates, such tools to include setting graduated tax rates such as the ones considered by the Chief Financial Officer and Treasurer for commercial and industrial taxes;

(8)Mayor Lastman be requested to write to the Minister of Finance again requesting:

(a)information respecting the Current Value Assessment (CVA) system which was originally requested by City Council at its meeting held on March 4, 5 and 6, 1998; and

(b)information previously requested in the communication dated April6,1998, from the Chief Financial Officer and Treasurer, addressed to the Assistant Deputy Minister, Office of Budget and Taxation, respecting necessary assessment information to determine assessments based on current value in current use;

(9)Council record its appreciation for the diligence and professional conduct of all City staff involved in the tax policies issues, in particular, staff of Finance, Economic Development, Legal, Housing, Information Technology, Clerk's and Chief Administrative Officer's Office; and

(10)the report dated July 23, 1998, from the Chief Financial Officer and Treasurer embodying the following recommendations, be adopted:

"It is recommended that:

(1)Council authorize the levy and collection of taxes for the 1998 taxation year, the imposition of a penalty charge for non-payment of 1998 taxes, the provision of interest to be added to tax arrears and to establish tax ratios for the year 1998;

(2)Council approve the levy of a special charge for 1998 for the following Business Improvement Areas and to provide for its collection: Bloor by the Park; Bloor Court Village; Bloor West Village; Bloor-Bathurst-Madison; Bloor-Yorkville; Bloordale Village; Corso Italia; Danforth by the Valley; Eglinton Way Village; Forest Hill Village; Gerrard India Bazaar; Greektown on the Danforth; Harbord Street; Islington Village; Junction Gardens; Kennedy Road; Kingsway; Lakeshore; Little Italy; Long Branch; Mimico Village; Old Cabbagetown; Parkdale Village; Queen/Broadview Village; Roncesvalles Village; St. Lawrence Neighbourhood; Upper Village and Weston;

(3)authority be granted for the introduction of the necessary bills in Council to levy taxes for the year 1998 and to provide for the collection of taxes for 1998 other than those levied under By-law No. 10-1998, to impose a penalty charge for non-payment of taxes, to provide for interest to be added to tax arrears, to establish tax ratios for the 1998 taxation year and to levy a special charge for 1998 for certain Business Improvement Areas and provide for its collection, in the form or substantially in the form of the draft by-laws attached thereto; and

(4)subject to Council adopting a residential property class phase-in program with or without a threshold; and the capping of taxes at 2.5 percent per year for the years 1998 - 2000 for the multi-residential, commercial and industrial property classes, that leave be granted for the introduction of the necessary bills in Council to give effect thereto in the form or substantially in the form of the draft by-laws attached hereto.")

The Strategic Policies and Priorities Committee submits the transmittal letter (July13,1998) from the Assessment and Tax Policy Task Force, without recommendation.

The Strategic Policies and Priorities Committee reports having referred the following motions to Mayor Lastman for a report directly to City Council on July 21, 1998:

(1)"That Recommendation No. (2) be amended to read:

'(2)in considering the phase-in periods for increases and decreases related to residential property tax reform, that Council be requested to vote in order of degree with the highest phase-in placed first, such votes to include using thresholds first and not using thresholds second.'";

(2)"That Recommendation No. (2) be amended by deleting the word 'highest' and replacing it with the word 'lowest'.";

(3)"That Recommendation No. (1) be referred to Mayor Lastman for a report directly to City Council on July 21, 1998."; and

(4)"That the Chief Financial Officer and Treasurer be requested to report to the Assessment and Tax Policy Task Force on an education program/counseling service to assist people who do not fall within the recommended programs who, nevertheless have difficulty in paying their property taxes as a result of reassessment."

The Strategic Policies and Priorities Committee submits the following transmittal letter (July13, 1998) from the Assessment and Tax Policy Task Force:

Recommendations:

The Assessment and Tax Policy Task Force on July, 6, 7, 11, and 13, 1998, recommended to the Strategic Policies and Priorities Committee and City Council that:

(1)in order to allow individuals time to adjust their financial affairs the increases and decreases related to property tax reform with respect to residential property tax reform be phased in over a seven and a half year period; and

(2)in considering the phase-in periods for increases and decreases related to residential property tax reform, that Council be requested to vote in the order of degree with the highest phase-in placed first, such votes to include using thresholds or not using thresholds.

The Task Force also reports having requested the Chief Financial Officer and Treasurer to report directly to Council on July 21, 998, on the following motion of Councillor Walker:

Whereas the Provincial Government is responsible for:

(i)authoring and implementing the legislation which imposed Current Value Assessment;

(ii)the assessment of all properties in Ontario;

(iii)the quality and accuracy of the assessments; and

Whereas the City of Toronto was not consulted as to the assessment of properties and had no part in designing the Current Value Assessment system; and

Whereas the City of Toronto has repeatedly requested from the Province, impact studies and verification, independent or otherwise, as to the accuracy of the assessments, to no avail; and

Whereas there are currently over 50,000 independent assessment appeals pending; and

Whereas an administration fee of $20.00 per residential appeal and $25.00 per commercial/industrial appeal is being charged by the Province to pay for the costs of these appeals; and

Whereas the City of Toronto will assume responsibility for all assessment related costs, including re-assessment, appeal, and administrative costs, after August 31, 1998;

Therefore Be It Resolved that:

(1)the City of Toronto refuse to assume any costs related to the implementation or operation of the Current Value Assessment system until the Province has carried out a study which verifies the accuracy of their assessment data; and

(2)the City of Toronto refuse to assume any costs related to the implementation or operation of the Current Value Assessment system until the assessment roll has been finalized and all appeals and re-assessments related to this year's assessments have been processed and settled by the Provincial Government.

Background:

The Assessment and Tax Policy Task Force was established by City Council at its meeting on March4, 5 and 6, 1998, when it amended and adopted Clause 2 of Report No. 3 of the Strategic Policies and Priorities Committee, titled "Process to Develop Property Tax Implementation Plan".

The Task Force met eleven times, scheduled three public meetings on April 6, 27, and July 6/7, 1998, at which approximately 120 citizens deputed. The Task Force has received approximately 210 communications from interested citizens commenting on the proposed new Ontario Fair Assessment System and taxation reforms which will affect property taxes paid by all residents and businesses throughout the City of Toronto.

The Assessment and Tax Policy Task Force had before it a report (July 2, 1998) from the Chief Financial Officer and Treasurer providing information to assist Council to develop a policy respecting the phase-in of assessment related property tax increases and decreases for the residential property class pursuant to the Fair Municipal Finance Act.

The Task Force also had before it the following communications respecting the current value assessment and the residential property class:

(a)(July 1, 1998) from Mr. Craig Nicholson;

(b)(June 30, 1998) from Mr. Dennis Choptiany, President, Lytton Park Residents' Organization;

(c)(July 2, 1998) from Ms. Oriella Reia Stillo;

(d)(July 2, 1998) from Mr. David Harrison;

(e)(July 2, 1998) from Ms. Maureen Williamson;

(f)(May 11, 1998) from Ms. Joanne Olsen;

(g)(June 29, 1998) from Dr. R.R. Tasker, MD, MA, FRCS(C), Division of Neurosurgery, Western Division, The Toronto Hospital;

(h)(July 6, 1998) from Mr. George Milbrandt;

(i)(July 3, 1998) from Mr. Olev Johanson;

(j)(July 6, 1998)from Mr. David Vallance;

(k)(July 6, 1998) from Mr. Brian Maguire, Director, North Hill District Homeowners' Association & Secretary-Treasurer of the Confederation of Resident & Ratepayers Associations;

(l)(July 6, 1998)from Mr. David Godley;

(m)(Undated) from Ms. Mary Lou Dickinson;

(n)(Undated) from Ms. Micheline Czyzykowski;

(o)(July 6, 1998) from Ms. Cindy Weiner, President, and Mr. Alex Frirdich, Member of Executive, St. Andrew's Ratepayers Association;

(p)(July 6, 1998)from Mr. Paul Siemens;

(q)(July 6, 1998) from Mr. Bill Nemerson, Member of the Seniors' Task Force;

(r)(July 6, 1998 from Mr. David Bruce;

(s)(July 8, 1998) from Mr. John Caliendo;

(t)(July 6, 1998) from Mr. Marc L. Johnson;

(u)(July 7, 1998) from Mr. David Hui & Mr. Steven K. Lam, Toronto Fair Tax Chinatown Committee;

(v)(July 8, 1998) from Ms. Judy MacAlpine;

(w)(July 2, 1998) from Ms. Leslie Dampier;

(x)(June 26, 1998) from Mr. Ben Barkow;

(y)(June 25, 1998) from Mr. Andrew Vernon-Betts; and

(z)(June 8, 1998) from Ms. Jennifer Carter.

The Task Force held public hearings on July 6, 1998, to hear from citizens on the reports from the Chief Financial Officer and Treasurer respecting Residential Property Class - Phase-In Policy, Multi-Residential Property Class - Tax Policy Options, and Property Tax Relief for Low-Income Seniors and Disabled Seniors and Disabled Persons.

The following persons addressed the Task Force on July 6, 1998:

-Mr. Dale Ritch

-Mr. David Vallance

-Mr. Michael McCarty, South Armour Heights Ratepayers' Association

-Mr. Brian Maguire

-Mr. Steve Ellis

-Mr. Sam Lewkowicz

-Mr. George Milbrandt

-Ms. Mary Janet MacDonald

-Mr. David MacAlpine

-Ms. Mary Lou Dickinson

-Mr. Paul Siemens

-Mr. Hendrick Flakierski

-Ms. Judy MacAlpine

-Mr. Alex Frirdich and Ms. Cindy Weiner, St. Andrews Ratepayers' Association

-Mr. Giovanni Mosca

-Mr. Julian Smit

-Mr. Robert Sydia

-Mr. Olev Johanson

-Mr. Frank Buttigieg

-Mr. Allan Burke, East Beach Community Association

-Mr. Harry Beatty

-Ms. Elizabeth Holder

-Mr. Howard Tessler, Federation of Metro Tenants' Association

-Mr. Barry Lyon, Lyon Consultants

-Mr. James Clare

-Mr. David Jackson

-Mrs. Toby Frankel, Jonare Frankel Holdings Ltd.

-Mr. Dan Crimi

-Mr. Tim Sheeres

-Mrs. Mun-Julee

-Dr. W.E. Goodman

-Ms. Elizabeth Dingman

-Mr. Cliff Jenkins

-Ms. Joan Milne

-Ms. Teresa DeCarvalho

-Mr. Bill McLeod

-Ms. Deborah Pomper

-Ms. Elizabeth Kimball

(Copies of the communications referred to in the transmittal letter of the Assessment and Tax Policy Task Force have been previously circulated to all Members of Council with the Assessment and Tax Policy Task Force agenda and copies thereof are on file in the office of the City Clerk.)

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(Report dated July 2, 1998, addressed to the

Assessment and Tax Policy Task Force

from the Chief Financial Officer and Treasurer)

Purpose:

To develop a policy respecting the phase-in of assessment related property tax increases and decreases for the residential property class pursuant to the Fair Municipal Finance Act.

Funding Source, Financial Implications and Impact Statement:

The phase-in of assessment related increases must be funded through the phase-in of decreases within the same property class. As such, there is no funding implication associated with this report. However, a shift of $15.3 million of new tax burden onto the residential class has occurred. This shift, which is not due to any budgetary changes but results from the Provincial calculation of the transition ratios, will cause an immediate non-phaseable increase of 0.0125 percent on residential property owners.

Recommendation:

Within the existing legislative framework, Council can choose a phase-in period ranging from two to eight years. Should Council elect to minimize the impact of assessment reform, the maximum eight-year phase-in is appropriate. Under this phase-in period, 88.2 percent of property owners would see an annual impact of less than $125.00.

However, given the fact that the next reassessment will be in three years hence, a phase-in period of three-years for assessment-related property tax increases and decreases for the residential property class should be considered to alleviate the confusion for the taxpayer, of carrying forward residual phase-in amounts from the 1998 reassessment while implementing the full impact of tax changes resulting from the 2001 reassessment. Under a three-year phase-in period, 65.9 per cent of property owners would see an annual impact of less than $167.00, and where 88.2 percent of property owners would see an annual impact of less than $333.00.

Council can also choose to phase-in tax changes in combination with a threshold for tax increases and decreases that would be paid in the first year of the phase-in period. Under a three year phase-in period and using a threshold for tax decreases of $200, and a threshold for tax increases of $299, 35.4 percent of property owners would receive their full tax decrease or increase in 1998. In the subsequent years of the phase-in period, 81.9 percent of property owners would see an annual impact of less than $167.00 and 94.4 percent would see an annual impact of less than $333.00.

Reference/Background:

Bill 106, by amendment to section 372 of the Municipal Act, provides for the Council of a municipality to pass a by-law in 1998 to phase-in 1998 assessment related tax increases or decreases, subject to certain requirements. First, the first year of a phase in must be in 1998 and the last year must be the 2005 taxation year or an earlier taxation year (i.e., the 1998 assessment related increase or decrease can be phased-in over a period of up to eight years). Second, the amount to be phased-in in a year, other than 1998, must be the same or less than the amount phased-in the previous year. Third, for each property class for each year, the adjustments made under the by-law must not affect the total taxes for municipal and school purposes on the land in the municipality that is in the property class and that is rateable for municipal purposes (i.e., within property classes, phase-in of increases must balance with the decreases). Finally, the by-law may provide for different phase-ins for different property classes and it may provide for no phase-in for some classes.

Should Council select any phase-in option, there will be an immediate first year impact for all properties in the residential class. Although increases and decreases are equal under any phase-in program, there will be a one time tax impact of $15.3 million for the 1998 tax year that must be absorbed by all properties in the residential class. This is due to the revised preliminary transition ratios as provided by the Province which result in a tax shift among all the property classes with some classes experiencing increases and some decreases. The creation of of a uniform Provincial residential education tax rate would have shifted approximately $119 million from the multi-residential class to the residential class. In setting the transition ratios, the Province has shifted back $104 million - which leaves $15.3 million of new tax burden on the residential class.

The ratios do not nullify the effect of a uniform tax rate completely by filling it with municipal taxes and, as mentioned above, does result in a shift of taxes onto the residential class that according to the Province, cannot be phased-in. The difference caused by this shift for the residential class is about 0.0125 percent or an immediate increase of approximately $28 for the average valued home of $220,000. Therefore, the analysis contained in the attached appendices exclude this impact.

Discussion:

With respect to phase-in policy, the decision required by Council is relatively straightforward: for each property class, a phase-in period of between one (i.e., no phase-in) and eight years must be adopted. The amount of increases phased-in must be borne by those in the same property class who are entitled to decreases. Obviously, those properties which are subject to a 1998 assessment related decrease will want the shortest phase-in period (i.e., no phase-in) in order to reduce their taxes by the full amount immediately. On the other hand, those who are subject to an assessment related increase will prefer the longest phase-in period allowed.

By choosing a phase-in period for each property class, Council must balance the needs of those who are entitled to decreases with the needs of those who may experience the financial hardship of a tax increase. As Council has no control of the amount of the 1998 assessment related increase or decrease, the only variable to work with is the phase-in period.

The final reassessment impact study indicates that 56.1 percent of residential assessment portions (300,866 portions) are to receive a property tax decrease, averaging $491.00 per portion, while 43.9percent (235,521 portions) are to receive a tax increase, averaging $692.00 per portion.

A primary objective of the phase-in policy should involve deciding upon an amount that is considered acceptable as an annual increase (and consequently a decrease) for the majority within a class. For example, consider a household for which the 1998 assessment-related increase is $1000.00. Without a phase-in, the household would be required to absorb the entire $1000.00 increase in his or her 1998 property tax. To alleviate the financial hardship such a sudden increase may pose to the householder, the increase may be phased-in over several years. If it is phased-in over two years, then the household would experience a 1998 tax increase of $500.00 and a further increase of $500.00 for the 1999 taxation year. If it is phased-in over three years, then the annual impact would be $333.00. Over four years, $250.00 per year, over five years, $200.00 per annum, and so on, to the maximum phase-in period of eight years, which would result in an annual impact of $125.00 in each of the eight years.

Appendix 1 shows the annual impact of various phase-in periods for the residential property class, along with the percentage of the population affected. The detailed data used in this analysis is provided in Appendix 2. Appendices 7-9 present the same data assuming higher residential tax rates of 1.30 percent, 1.35 percent and 1.40 percent, to illustrate the sensitivity of changes in the tax rates from the impact of any tax shifts from either multi-residential, commercial or industrial properties onto the residential property class.

CVA Implementation - Options:

A.Immediate Implementation

Council can implement CVA immediately for the residential property class by choosing not to phase-in tax changes due to reassessment. Under this scenario, 235,521 or 43.9 percent of residential properties would be required to pay their full tax increase in 1998. Conversely, all properties that are entitled to a tax decrease under CVA, would receive their full decrease in 1998.

The data shows that the average tax increase per portion is 26.9 percent or $692.00. Due to the delay of the assessment roll in 1998, this tax increase would be required to be paid in the last four months of the year. Therefore, if Council wishes to alleviate the financial hardship a sudden tax increase may pose to some homeowners, it should adopt a phase-in program.

B.2 Year Phase-in

Under a two-year phase-in period, 65.9 percent of property owners would see an annual impact of less than $250.00, and where 88.2 percent of property owners would see an annual impact of less than $500.00. Under the two-year phase-in, there would be almost 10,683 properties with annual increases greater than $1000.00.

C.3 Year Phase-in

Under a three-year phase-in period, 65.9 per cent of property owners would see an annual impact of less than $167.00, and where 88.2 percent of property owners would see an annual impact of less than $333.00. Under the three-year phase-in, there would still be almost 4,493 properties with annual increases greater than $1000.00.

A phase-in period of three-years would also coincide with the next reassessment for 2001, which would alleviate confusion for the taxpayer of carrying forward residual phase-in amounts from the 1998 reassessment while implementing the full impact of tax changes resulting from the 2001 reassessment or attempting to implement another phase-in program, if available.

D.4 Year Phase-in

Another option to be considered is a four-year phase-in (annual increases to the year 2002) for the residential property class which would result in 88.2 percent of assessment portions (473,013 portions) experiencing annual tax increases or decreases of less than $250.00 per annum over the four years it takes to achieve the total 1998 assessment related tax increase or decrease. Under a four-year phase-in, 2,296 properties would experience annual increases greater than $1000.00.

E.5 Year Phase-in

A five year phase-in period would result in 65.9 per cent of property owners having an annual tax increase of less than $100.00, while 88.2 percent of property owners would have an tax increase less than $200.00. Under the five-year phase-in, 1,404 properties would see annual increases greater than $1000.00.

F.6 Year Phase-in

Under a six-year phase-in period, 65.9 per cent of property owners would see an annual impact of less than $83.00, and 88.2 percent of property owners would see an annual impact of less than $167.00. Under the six-year phase-in, 978 properties would see annual increases greater than $1000.00.

G.7 Year Phase-in

Under a seven-year phase-in period, 65.9 per cent of property owners would see an annual impact of less than $71.00, and 88.2 percent of property owners would see an annual impact of less than $143.00. Under the seven-year phase-in, 758 properties would see annual increases greater than $1000.00.

H.8 Year Phase-in

An eight-year phase-in period is the maximum time period allowed under the legislation. Should Council elect to minimize the impact of assessment reform, the maximum eight-year phase-in should be considered. Under this phase-in period, 65.9 per cent of property owners would see an annual impact of less than $62.00, and 88.2 percent of property owners would see an annual impact of less than $125.00. Under an eight-year phase-in, 605 properties would see annual increases greater than $1000.00.

The annual impact and percentage of assessment portions affected for the various phase-in options for all City wards are shown in Appendix 10.

Given the preceding, if the objective is to maintain the increases at a tolerable level while balance the needs of those who may be subject to a decrease, and reducing the confusion that will arise from the next reassessment program in 2001, then a three year phase-in period is appropriate, as it contains the annual increases (and decreases) to within $167.00, for two-thirds of the assessment portions (properties).

Council can also use thresholds based on a specified dollar amount, in combination with a phase-in program, as set out below:

I.Phase-in Based on Threshold

Another option for a phase-in would be to specify a dollar threshold as a basis for phasing-in increases/decreases instead of an annual percentage change. For example, instead of a phase-in of four years whereby the increase and decrease change 25 percent annually for each of the four years, a dollar threshold of $200.00 could be selected over which any tax increase/decrease would be phased-in each year over four years.

The distribution ranges of tax changes differ for tax increases versus tax decreases, with more portions decreasing than increasing. As a result, the average tax increase is higher than the average tax decrease. Therefore, a threshold set for tax decreases would result in a different threshold for tax increases. For example, a threshold for residential tax decreases of $200.00 would result in a corresponding threshold for tax increases of $299.00. A threshold of tax decreases of $600 would require a threshold increase of $960.00.

The following table illustrates the impact of phasing in a tax increase of $900.00 with a threshold of $299.00 over 4 years. Any tax increase less than or equal to $299.00 would be payable in the first year. The balance of the tax change can be accomplished using one of two methods:

Threshold Option 1: Annual phase-in amount after Year 1 is less than $299.00 and is phased-in by the total number of years. Total tax change less $299.00, divided by the length of the phase-in (in years), or

($900.00 - $299.00) ) 4 years

= $600.00 ) 4

= $150.00

Year 1 = $299.00 + $150.00 = $450.00

Year 2 = $150.00, etc until the end of the phase-in period.

Threshold Option 2: If the increase or the decrease is less than the threshold amount, the full amount is paid. If the total tax increase or decrease is greater than the threshold, but the annual tax change under a phase-in is less than the threshold, then the amount in Year 1 = threshold; balance is phased-in over the remaining years, or

$600.00 ) 4

= $150.00 per year

Annual phase-in amount < $299.00

Year 1 = $299.00

Year 2 = ($600.00-$299.00) ) (4-1) = $100.00, until the end of the phase-in period.

Where the increase and decrease is greater than the threshold, and the annual phase-in amount is greater than or equal to the threshold, the annual amount paid equals the total tax change divided by the phase-in period, or

$1,500.00 ) 4 = $375.00 per year

Year 1= $375.00

Year 2= $375.00, etc until the end of the phase-in period.

In this example, the $375.00 is more than the threshold of $299.00 and therefore the threshold would not apply.

If Council chooses a threshold option, the preferred option to implement the balance of the tax changes is Option 2. Threshold Option 1 results in a large proportionate share of taxes being paid in Year 1 while Option 2 achieves a more balanced phase-in of any tax changes over and above the threshold. As a result, Threshold Option 2 is used as the basis of the analysis below.

The following table summarizes three options using selected threshold levels and illustrates the number of portions that would experience the full increase or decrease impact in the first year. The three options analyzed were (1) $299.00 increase with a $200.00 decrease; (2) $650.00 increase with a $400.00 decrease; and, (3) $960.00 increase with a $600.00 decrease.

Using Option 2 as the method to phase-in tax changes above the threshold levels, the distribution of impacts of implementing a phase-in policy with a threshold are summarized below:

(1)Increases of $299.00 and Decreases of $200.00 - 3, 5 and 8 Year Phase-in Periods

Appendix 3 shows the distribution of the assessment portions under this threshold option using a phase-in period of 3 years. In the first year (1998), 35.38 percent or 189,731 portions would see their full increase/decrease. For those that exceed the threshold, the additional annual amount to pay in Years 2 and 3 of the phase-in period would be as follows:

(i)155,306 portions or 29 percent would see an impact of less than $83.00 in each of Years 2 and 3 of the phase-in period. 109,701 portions or 20.5 percent would receive annual tax decreases of less than $83.00 and 45,605 portions or 8.5 percent would receive annual tax increases of less than $83.00.

(ii)94,396 portions or 20.5 percent would see an impact of between $83.00 and $167.00 in each of Years 2 and 3 of the phase-in period. 64,731 portions or 12 percent would receive annual tax decreases of between $83.00 and $167.00 while 29,665 portions or 8.5 percent would receive annual tax increases of between $83.00 and $167.00.

(iii)66,933 portions or 12.5 percent would see an impact of between $167.00 and $333.00 in each of Years 2 and 3 of the phase-in period. 28,429 portions or 5.3 percent would receive annual tax decreases of between $167.00 and $333.00 while 38,504 portions or 7.2 percent would receive annual tax increases of between $167.00 and $333.00.

(iv)30,021 portions or 5.6 percent would see an impact of more than $333.00 in each of Years 2 and 3 of the phase-in period. 10,331 portions or 1.9 percent would receive annual tax decreases of more than $333.00 while 19,690 portions or 3.7 percent would receive annual tax increases of more than $333.00.

Appendix 3 also shows the annual tax impacts based on a threshold for tax decreases of $200.00 over phase-in periods of 5 and 8 years. A longer phase-in period raises the threshold slightly for tax increases to $308.00, from $299.00. The change in the tax increase threshold results in an additional 2,167 properties paying their full increase in Year 1. However, the longer the phase-in period, the lower the annual tax impact in each of the subsequent years of the phase-in period. For example, under a 5 year phase-in period, 496,485 portions or 92.2 percent would see an annual tax impact of less than $200.00. Under an 8 year phase-in period, 495,555 or 92 percent would receive an annual tax impact of less than $125.00.

Appendix 4 shows a comparison between the annual tax changes and distribution of increases and decreases based on phase-in periods of 3, 5 and 8 years. The table compares the distribution of portions in each tax change range that would occur under a decrease threshold of $200.00 scenario, with the distribution of portions the would occur under a phase-in without a threshold.

(2)Increases of $650.00 and Decreases of $400.00 - 3 Year Phase-in Period

Appendix 5 shows the distribution of the assessment portions under this threshold option. In the first year (1998), 63.78 percent or 342,124 portions would see their full increase/decrease. For those that exceed the threshold, the additional annual amount to pay would be as follows:

(i)91,281 portions or 17percent would see an impact of less than $83.00 in each of Years 2 and 3 of the phase-in period. 66,723 portions or 12.4 percent would receive annual tax decreases of less than $83.00 and 24,558 portions or 4.5 percent would receive annual tax increases of less than $83.00.

(ii)43,771 portions or 8.2 percent would see an impact of between $83.00 and $167.00 in each of Years 2 and 3 of the phase-in period. 27,359 portions or 5.1 percent would receive annual tax decreases of between $83.00 and $167.00 while 16,412 portions or 3.1 percent would receive annual tax increases of between $83.00 and $167.00.

(iii)32,630 portions or 6.1 percent would see an impact of between $167.00 and $333.00 in each of Years 2 and 3 of the phase-in period. 15,808 portions or 3 percent would receive annual tax decreases of between $167.00 and $333.00 while 16,822 portions or 3.1 percent would receive annual tax increases of between $167.00 and $333.00.

(iv)26,581 portions or 5 percent would see an impact of more than $333.00 in each of Years 2 and 3 of the phase-in period. 10,331 portions or 1.9 percent would receive annual tax decreases of more than $333.00 while 16,250 portions or 3 percent would receive annual tax increase of more than $333.00.

(3)Increases of $960.00 and Decreases of $600.00 - 3 Year Phase-in

Appendix 6 shows the distribution of the assessment portions under this threshold option. In the first year (1998), 80 percent or 428,370 portions would see their full increase/decrease. For those that exceed the threshold, the additional annual amount to pay would be as follows:

(i)48,431 portions or 9 percent would see an impact of less than $83.00 in each of Years2 and 3 of the phase-in period. 33,736 portions or 6.3 percent would receive annual tax decreases of less than $83.00 and 14,695 portions or 2.7 percent would receive annual tax increases of less than $83.00.

(ii)20,243 portions or 4 percent would see an impact of between $83.00 and $167.00 in each of Years 2 and 3 of the phase-in period. 11,870 portions or 2.2 percent would receive annual tax decreases of between $83.00 and $167.00 while 9,493 portions or 1.8 percent would receive annual tax increases of between $83.00 and $167.00.

(iii)17,612 portions or 3.3 percent would see an impact of between $167.00 and $333.00 in each of Years 2 and 3 of the phase-in period. 8,119 portions or 1.5 percent would receive annual tax decreases of between $167.00 and $333.00 while 9,493 portions or 1.8 percent would receive annual tax increases of between $167.00 and $333.00.

(iv)20,731 portions or 3.9 percent would see an impact of more than $333.00 in each of Years 2 and 3 of the phase-in period. 9,403 portions or 1.8 percent would receive annual tax decreases of more than $333.00 while 11,328 portions or 2.1 percent would receive annual tax increase of more than $333.00.

Impact of Next Reassessment on Phase-in Program:

A secondary but important issue that needs to be addressed during consideration of a phase-in period is the impact of subsequent reassessments. The legislation prescribes that reassessment is to occur at three year intervals, with the next assessment being effected three years hence for the 2001 taxation year. A distinct advantage of a three-year phase-in period is that the entire assessment-related increase or decrease would be completely phased-in prior to the next reassessment. This would alleviate the confusion for the taxpayer of carrying forward residual phase-in amounts from the 1998 reassessment while attempting to implement another phase-in program, if available, for the 2001 reassessment. This reason provides a significant advantage over the alternative four-year phase-in presented in this analysis.

The next reassessment, which will occur for taxation in the year 2001, will be based on valuations as at June, 1999. At this time, existing legislation does not permit any phase-in of tax changes resulting from the next reassessment.

The phasing-in of the reassessment changes occurring in 1998, if longer than 3 years, would continue until the phase-in is completed and will not be eliminated with the next reassessment in 2001. The following examples, using both a 3 year and 8 year phase-in scenario for the 1998 assessment-related tax changes, demonstrate what would occur with the 2001 reassessment.

Scenario:Phase-in beginning in 1998 for 3 and 8 years, with no change in CVA in 2001

1997 Taxes$3,000.00

1998 Preliminary Taxes$3,300.00

Assessment-related Tax Increase $300.00

Example 1: Phase-in with 2001 CVA reassessment increase

1997 Taxes$3,000.00

1998 Preliminary Taxes$3,300.00

Assessment-related Tax Increase $300.00

2001 Tax (reassessment re 1999 valuation)$3,600.00

Example 2: Phase-in with 2001 CVA reassessment decrease

1997 Taxes$3,000.00

1998 Preliminary Taxes$3,300.00

Assessment-related Tax Decrease -$300.00

2001 Tax (reassessment re 1999 valuation)$3,000.00

Any property that is subject to a successful assessment appeal will affect the phase-in program. The reduction must be taken into account and re-calculated as part of the phase-in program. If prior years were appealed the taxpayer would be entitled to the full refund, however, the property would be subject to the requirements of the phase-in program.

If Council adopts an eight year phase-in program, it could repeal the by-law after the third year (2001) to coincide with the next reassessment cycle. However, the initial eight phase-in program (and by-law) would have created expectations among taxpayers that their tax increase would be phased-in over the eight years with a specified annual tax payable. To repeal the by-law in 2001 might be seen as unfair and may cause undue financial hardship to those taxpayers expecting the longer phase-in period, as any unpaid balance for the remaining five years, would become due in 2001. Since the City would be carrying the phased-in decreases over the eight year period as well, the repeal of the bylaw after three years would result in those taxpayers being credited with the total outstanding decreases at that time.

Conclusion:

The City may pass a by-law providing for the phase-in of assessment-related property tax increases and decreases pursuant to the Fair Municipal Finance Act. The amount of increases phased-in must be borne by those in the same property class who are entitled to decreases. By choosing a phase-in period, Council must balance the needs of those who are entitled to decreases with the needs of those who may experience the financial hardship of a tax increase. This report takes the approach of attempting to find a level of annual impact that may be acceptable to both the increase and decrease sides. Should Council elect to minimize the impact of assessment reform, the maximum eight-year phase-in should be considered. Under this phase-in period, 88.2 percent of property owners would see an annual impact of less than $125.00.

The analysis also shows that approximately two-thirds of all the residential assessment portions may be accommodated with an annual impact of $167.00 or less if a three-year phase-in period is adopted. In fact, approximately nine-tenths of the portions would see an impact of $333.00 or less (that is those entitled to decreases as well as those that may be receiving increases). Furthermore, the three-year phase-in has a distinct advantage over longer phase-in periods in that the entire assessment-related increase or decrease would be completely phased-in prior to the next reassessment. This would alleviate the confusion for the taxpayer, of carrying forward residual phase-in amounts from the 1998 reassessment while attempting to implement another phase-in program, if available, for the 2001 reassessment. For 1998, due to the Provincial transitional ratios, there will be a one time tax shift to the residential class of $15 Million, which cannot be part of any phase-in program and must therefore be absorbed by all properties.

Contact Names:

Paul Wealleans, 397-4208

Lynne Ashton, 397-4203

Adir Gupta, 392-8071

Insert Table/Map No. 1

appendix 1

Appendix 2

Residential/Farm Property Class - Phase-in Program - City Total

Appendix 2 (continued)

Residential/Farm Property Class - Phase-in Program - City Total

Insert Table/Map No. 1

appendix 3 - annual impact of phase-in policy with threshold

Insert Table/Map No. 2

appendix 4 - annual impact of phase-in policy comparison of inc/dec

Insert Table/Map No. 3

appendix 4 con'td - annual impact of phase-in policy

Insert Table/Map No. 4

appendix 5 - annual impact of phase-in policy with threshold

Insert Table/Map No. 5

appendix 6 - annual impact of phase-in policy with threshold

Insert Table/Map No. 6

appendix 7

Insert Table/Map No.7

appendix 8

Insert Table/Map No. 8

appendix 9

Appendix 10

Phase-in Distribution of Residential/Farm Property Class -

For Ward 01

Appendix 10 (continued)

Phase-in Distribution of Residential/Farm Property Class -

For Ward 02

Appendix 10 (continued)

Phase-in Distribution of Residential/Farm Property Class -

For Ward 03

Appendix 10 (continued)

Phase-in Distribution of Residential/Farm Property Class -

For Ward 04

Appendix 10 (continued)

Phase-in Distribution of Residential/Farm Property Class -

For Ward 05