May 4, 1998
To:Strategic Policies and Priorities Committee
From:City Clerk
Subject:Phase-In Policy respecting the Residential Property Class
Recommendations:
The Assessment and Tax Policy Task Force on April 20, 1998, recommended to the Strategic Policies and Priorities
Committee and Council that the Provincial Government be requested, when implementing Current Value
Assessment, to use a moving average of assessed value ultimately using three different years of assessment.
The Task Force reports, for the information of the Strategic Policies and Priorities Committee and City Council, having
requested the Chief Financial Officer and Treasurer to report on:
1.providing the figures and impact of allowing the decreases and phasing in the increases;
2.immediate implementation of Current Value Assessment instead of phase-in for those low-income seniors and disabled
persons whose property tax decrease;
3.the effect of establishing a threshold of $333.00 for the implementation of either increases or decreases.
Comments:
The Assessment and Tax Policy Task Force had before it a report (April 16, 1998) from the Chief Financial Officer and
Treasurer providing a context for development of a policy respecting the phase-in of assessment related property tax
increases and decreases for residential property class pursuant to the Fair Municipal Finance Act.
The Task Force also had before it a communication (April 16, 1998) from Councillor Bossons
proposing two scenarios for asymmetrical phase in; both would allow all decreases to be implemented in full immediately.
(Report dated April 16, 1998, addressed
to the Assessment and Tax Policy Task Force
from the Chief Financial Officer and Treasurer)
Purpose:
To provide a context for the development of 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.
Recommendation:
Within the existing legislative framework, Council can choose a phase-in period ranging from one 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, 87.9 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 difficulties for the City, and 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. Under
a three-year phase-in period, 65.7 per cent of property owners would see an annual impact of less than $167.00, and where
87.9 percent of property owners 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 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.
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. Because Council has no
control of the 1998 assessment related increase or decrease, the only variable to work with is the phase-in period.
The preliminary reassessment impact study indicates that 55.7 percent of residential assessment portions (298,541
portions) are to receive a property tax decrease, averaging $480.00 per portion, while 44.3 percent (237,390 portions) are to
receive a tax increase, averaging $674.00 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.
Table 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 1. Appendices 2-4 present the same
data assuming higher residential tax rates, from 1.30 percent to 1.40 percent, in order to gage the sensitivity of any change
in the preliminary tax rates and phase-in policy resulting from the new tape to be received in May 1998 and/or the impact of
any tax shifts from either multi-residential, commercial or industrial properties onto the residential property class. The
effects were not significant in relation to the phase-in period options.
Should Council elect to minimize the impact of assessment reform, the maximum eight-year phase-in should be
considered. Under this phase-in period, 87.9 percent of property owners would see an annual impact of less than $125.00.
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 87.9 percent of assessment portions (414,761 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. Alternatively, a three-year phase-in would achieve the same results by keeping the annual tax increase
or decrease within $333.00 per annum, with a similar percentage of occupancies affected. The three-year phase-in would
ensure that 65.7 percent, or two-thirds, of the assessment portions, would see an annual impact of less than $167.00. Under
the three-year phase-in, there would still be almost 5,000 properties with annual increases greater than $1000.00. However,
the current value assessment for the majority of these properties is in excess of $500,000.00. The annual impact and
percentage of the population affected of the various phase-in options are illustrated in Table 1.
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, then a three or four year phase-in period may be appropriate, which contains the annual
increases (and decreases) to within $167.00 and $125.00 respectively, for two-thirds of the assessment portions
(households).
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 difficulties for the City, and 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.
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, 87.9 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 difficulties for the City, and 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.
Contact Name:
Adir Gupta, 392-8071
Bill Wong, 392-9148
Paul Wealleans, 392-6599
W.A. Liczyk, C.A.
Chief Financial Officer and Treasurer
Table 1
Annual Impact of Phase-In Policy
Residential Property Class
