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TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on October 28, 29 and 30, 1998

STRATEGIC POLICIES AND PRIORITIES COMMITTEE

REPORT No. 22

1The Optional New Multi-Residential Property Class

2Court Ordered Recount in Scarborough-Malvern



City of Toronto

REPORT No. 22

OF THE STRATEGIC POLICIES AND PRIORITIES COMMITTEE

(from its special meeting on October 28, 1998,

submitted by Councillor Case Ootes, Chair Pro Tem)

As Considered by

The Council of the City of Toronto

on October 28, 29 and 30, 1998

1

The Optional New Multi-Residential Property Class

(City Council on October 28, 29 and 30, 1998, adopted this Clause, without amendment.)

The Strategic Policies and Priorities Committee recommends that:

(1)City Council pass a by-law prior to October 31, 1998, (the legal deadline for 1999) opting to have the new multi-residential property class apply to the City of Toronto beginning with the 1999 taxation year;

(2)the Province be requested to permit the municipality to extend the maximum period for applying the new multi-residential property class beyond eight years (ie. in perpetuity);

(3)the Chief Financial Officer and Treasurer be requested to report back to City Council, through the Assessment and Tax Policy Tax Force, on the tax rate which would be applied to the new multi-residential property class;

(4)the Association of Municipalities of Ontario be requested to support making the new multi-residential property class permanent;

(5)the Federal Government be requested to treat the construction of new rental accommodation units in the same fashion as residential housing with respect to G.S.T. tax relief;

(6)City Council reaffirm its intent to create a permanent solution to ensure property tax equity between homeowners and tenants; and the workplan to that end be developed in 1999, as set out by Council at its meeting held on July 21 and 23, 1998.

The Strategic Policies and Priorities Committee reports, for the information of Council, having requested the Commissioner of Community and Neighbourhood Services, in consultation with appropriate officials, to report to the Strategic Policies and Priorities Committee on the following motion:

"That City Council request the Province to grant the City legislation which would permit the City to create a new property class for Rooming Houses, Bachelorettes and other housing accommodation for the poorest and most vulnerable residents in the community."

The Strategic Policies and Priorities Committee submits the following transmittal letter (October 23, 1998) from the City Clerk:

Recommendations:

The Assessment and Tax Policy Task Force recommends that:

(1)City Council pass a by-law prior to October 31, 1998 (the legal deadline for 1999), opting to have the new multi-residential property class apply to the City of Toronto beginning with the 1999 taxation year;

(2)the Province be requested to permit the municipality to extend the maximum period for applying the new multi-residential property class beyond eight years (ie. in perpetuity);

(3)the Chief Financial Officer and Treasurer be requested to report back to City Council, through the Assessment and Tax Policy Tax Force, on the tax rate which would be applied to the new multi-residential property class;

(4)the Association of Municipalities of Ontario be requested to support making the new multi-residential property class permanent;

(5)City Council request the Province to grant the City legislation which would permit the City to create a new property class for Rooming Houses, Bachelorettes and other housing accommodation for the poorest and most vulnerable residents in the community;

(6)the Federal Government be requested to treat the construction of new rental accommodation units in the same fashion as residential housing with respect to G.S.T. tax relief; and

(7)City Council reaffirm its intent to create a permanent solution to ensure property tax equity between homeowners and tenants; and the workplan to that end be developed in 1999, as set out by Council at its meeting held on July 21 and 23, 1998.

The Task Force reports, for the information of the Strategic Policies and Priorities Committee, having:

(1)received the report (October 19, 1998) from the Commissioner of Community and Neighbourhood Services and Chief Financial Officer and Treasurer;

(2)requested the Chair of the Mayor's Task Force on Homelessness to advise Council in writing, at its meeting to be held on October 28, 1998, as to whether she would support Recommendation Nos. (1), (2) and (5) above; and

(3)requested the Chief Financial Officer and Treasurer to report to the Assessment and Tax Policy Tax Force on the creation of a new property class which could be applied to Rooming Houses and Bachelorettes, and other housing accommodation for the poorest and most vulnerable residents in the community, as set out in Recommendation No. (5) above.

Background:

The Assessment and Tax Policy Task Force, on October 22, 1998, had before it a motion by Councillor Miller from the Council meeting of July 29, 30 and 31, 1998, recommending:

"that Council pass a by-law to create a property class for newly constructed rental apartment buildings of seven units or more at the residential/farm tax rate and that the Province be requested to make this a permanent tax policy tool."

During consideration of the foregoing matter, the Task Force also had before it the following reports/communications:

-(September 22, 1998) from the Commissioner of Community and Neighbourhood Services and Chief Financial Officer and Treasurer;

-(October 19, 1998) from the Commissioner of Community and Neighbourhood Services and Chief Financial Officer and Treasurer;

-(October 20, 1998) from Mr. Murray Lowe, Bachelorette Owners Association; and

-(Undated) from Mr. Greg Lampert, Economic Consultant

The following addressed the Task Force:

-Mr. Murray Lowe, Bachelorette Owners Association Rooming House Working Group

-Mr. Larry Chilton, Toronto Rooming House Association

-Mr. Gary Griesdorf, Executive Director, Greater Toronto Apartment Association

-Mr. Ray Van Eenooghe, Bachelorette Owners Association

The Task Force's recommendations are noted above.

The Strategic Policies and Priorities Committee also submits the following motion of Councillor Miller:

"WHEREAS more than half of the future housing need in the City will be for rental housing; and

WHEREAS the interim report of the Golden Task Force said that at least 4,000 new affordable rental units must be built every year; and

WHEREAS at the last Council meeting Council struck out Recommendation No. (2) of the Strategic Policies and Priorities Committee on the Tax Policy Options of the Multi-Residential Property class without consideration of the ramifications of the motion on the building of new housing;

WHEREAS the former Metro Council, and many others, supported the objective set out in that recommendation as it will help to promote the construction of rental housing;

NOW THEREFORE BE IT RESOLVED THAT such recommendation be reopened and that Council pass a by-law to create a property class for newly constructed rental apartment buildings of seven units or more at the residential/farm tax rate and that the Province be requested to make this a permanent tax policy tool."

The Strategic Policies and Priorities Committee also submits the following joint report (September22,1998) from the Commissioner of Community and Neighbourhood Services and the Chief Financial Officer and Treasurer, addressed to the Assessment and Tax Policy Task Force:

Purpose:

To report to the Assessment and Tax Policy Task Force on the process and benefits of adoption of the new multi-residential property class in the City of Toronto.

Financial Implications:

None.

Recommendations:

It is recommended that Council:

(1)pass a by-law prior to October 31, 1998, opting to have the new multi-residential property class apply to the City of Toronto beginning with the 1999 taxation year;

(2)request that the Province permit the municipality to extend the maximum period for applying the new multi-residential property class beyond eight years; and

(3)request that the Chief Financial Officer and Treasurer report back to Council on the tax rate which would be applied to the new multi-residential property class.

Background:

The Assessment Act allows the Minister of Finance to prescribe property classes, some of which may provide a municipality the option of opting to have the property class apply within that municipality. Ontario Regulation No. 282/98 creates the new multi-residential property class and allows City Council to opt to have the new multi-residential property class apply within the City of Toronto by passing a by-law.

The new multi-residential property class consists of property that would otherwise have been in the multi-residential property class (i.e. residential buildings with seven or more units) but which units have been built or converted from a non-residential use pursuant to a building permit issued after the by-law was passed and which units were ready for occupation on or before the day as of which the land is classified for the taxation year.

If City Council opts to have the new multi-residential property class apply within Toronto, Council can set a separate tax rate for that class. This rate will continue to apply to a property for up to eight years after construction, but would revert to the multi-residential tax rate thereafter.

For the new multi-residential property class to be in effect beginning with the 1999 taxation year, Council must approve a by-law before October 31, 1998 opting to have the class apply in the City of Toronto.

At its July 21 and 23rd special meeting, City Council struck out Recommendation No. (2) of Report No. 13, Clause 2 of the Strategic Policies and Priorities Committee which recommended that Council pass a by-law to opt-in to the new multi-residential property class. At its meeting of July 29, 30 and31st, Council reopened the opting-in to this property class and referred the matter back to the Assessment and Tax Policy Task Force.

This report has also been forwarded to the Council Strategy Committee for People without Homes. This Committee is involved in work on an affordable housing supply strategy for the City of Toronto. The new multi-residential property class recommended by this report is one of the mechanisms previously identified by the Committee.

What follows is additional background material about the need for the adoption of the new multi-residential property class, which is set out under the following headings:

(1)Why the New Multi-Residential Property Class is important for encouraging additional rental housing development

(2)Potential Impact of New Multi-residential Property Class on future supply

(3)Tenant Protection Act, 1997 (TPA) and new rental construction

(4)Impact of New Multi-residential Property Class on Creation of "Affordable" units

(5)Tax Rate for the New Multi-Residential Property Tax Class and income taxes

(6)Tax Shifts

1.Why the New Multi-Residential Property Class is important for encouraging additional rental housing development:

The need for the City to play a role in supporting the development of affordable housing, and rental housing in particular, has been described in a previous report received by Council at its meeting July29, 30 and 31st, 1998 entitled Toward a Municipal Strategy to Encourage the Creation of Affordable Housing, (Clause No.7 of Report No.7 of the Community and Neighbourhood Services Committee). The impact property taxes have had in discouraging the development of rental housing in the City was documented as part of the work by the Metro Toronto Stakeholder Panel on Housing, 1997 (Prospects for Rental Housing Production in Metro, Lampert, Pomeroy and Helyar and Associates, March 1997).

After modelling a number of financial proformas and with input from the development industry and other stakeholders, the Stakeholder Panel concluded that the "economic rent" of a rental unit was far in excess of the "market rent" a landlord could reasonably hope to charge a tenant. Lampert's studies have shown that the gap between the rent a landlord can charge for a rental unit is about $3,000.00/year (1995 dollars) lower than the rent the landlord would have to charge to cover construction and operating costs (economic rent).

To bring the economic rent closer to market rent will require a number of initiatives and the cooperation of the municipal, provincial and federal levels of government. The most significant initiative is reducing property taxes paid by multi-residential properties to the residential rate. By creating the new multi-residential property class, and taxing it at the residential class rate, the City can reduce the gap between economic rent and market rent by about 40 percent (based on financial proformas from The Challenge of Encouraging Investment in New Rental Housing in Ontario, Greg Lampert Economic Consultant, Nov. 1995).

What is perhaps even more important is that by introducing the new multi-residential property class, the City would make a very strong statement to the provincial and federal government that the City is committed to doing its share to improve the supply of affordable housing; and that we expect the other levels of government to contribute their share as well.

As for the other initiatives required to bridge the gap, over the next few months Council will be receiving reports around actions the City may take to encourage rental housing development, as outlined in Towards a Municipal Strategy to Encourage the Creation of Affordable Housing"(Commissioner of Community and Neighbourhood Services, June 29, 1998).

2.Potential Impact of New Class on future supply:

The Task Force has been previously advised that in the absence of this new multi-residential property class, developers would simply register the buildings as condominiums. Although developers have responded that they can achieve the lower rate without a special class by constructing condominiums, and renting the units out, this is not the preferred option for the City. Rental housing tends to be more stable than condominium, and there is greater security of tenure for tenants. Supply of rental housing in the city is greatly outstripped by demand (vacancy rate is now .8 percent; a healthy rate is generally in the rate of 3 to 5 percent). Finally, condominium units tend to be of higher value than rental, and this may translate into higher rents.

Given the lack of affordable and market rental units in the City, it is in the City's best interests to support rental housing construction. The potential impact of the creation of a new multi-residential class is difficult to quantify. However, interest has been expressed by a number of parties regarding new apartment development. City staff will monitor the developments in this class should it be created by Council.

Although the new multi-residential property class may be applied for up to eight years after construction, background work undertaken by the Stakeholder Panel noted that the jump in costs after year eight would still be a problem for investors, and a permanent lower rate should be established. The Stakeholder Panel recommended that the City phase-in equalization of property taxation for multi-residential and residential for both new construction and existing construction. This report recommends that the Council request that the province permit the municipality to extend the maximum period for applying the new multi-residential property class beyond eight years.

As mentioned earlier, the creation of a new class for apartment buildings is one tool that the City can use to encourage construction of rental units. The eight year period in which the reduced residential tax rate would apply for properties in this class should allow for a reasonable length of time to initiate some development; but is more likely to be successful if applied for longer than eight years. Other future initiatives, either by the City or in partnership with other levels of government and the private sector may augment this initiative.

3.Tenant Protection Act, 1997 (TPA) and new rental construction:

Rent-setting rules under the TPA do not apply to new rental units - those first occupied after June16, 1998 (s.4(2)). What this means is that tenants of new units would not be subject to the same level of rent protection as tenants of older units. The landlord can increase rents by more than the guideline without approval from the Ontario Rental Housing Tribunal.

Tenants of new units would also not be eligible for rent decreases resulting from municipal tax decreases. For "older" units (units occupied by the current tenant prior to June 17, 1998), the TPA requires that where the municipal property taxes decrease by more than 2.49 percent, the tenant is entitled to an automatic rent reduction equal to 20 percent of the tax decrease percentage. This reduction only applies to sitting tenants (new rents are established when a new tenant moves in) and may be offset if there is a higher maximum rent for the unit. For more detail, see City Response to Proposed Regulations under the Tenant Protection Act to Reduce Rents resulting from Tax Reductions (Commissioner of Community and Neighbourhood Services report to Assessment and Tax Policy Task Force, May 28, 1998).

If the new multi-residential property class is not established, tenants of new units would likely not receive any benefit from any future efforts the City may make to equalize tax rates between residential and multi-residential uses, as the landlord would not be required to pass the savings on to the tenant. Tenants of existing multi-residential complexes (unit occupied by the sitting tenant before June 1998) may receive some limited benefit from equalization (see section 6. Tax Shifts below).

The City should, however, continue requesting that the province introduce rent control rules which would ensure the benefit of any tax reductions is passed into tenant rents, over the long term. Such a strategy may contribute to improving the affordability of existing units.

4.Impact of New Multi-residential Property Class on Creation of "Affordable" units:

The new multi-residential property class, on its own, will not contribute to the creation of "affordable" units (this assumes that an affordable unit is one where the rent is below the market level). At best, it narrows the gap between the market and economic rents, and its value is that it may stimulate additional rental construction. As mentioned above, the vacancy rate currently stands at.8percent. It is possible that additional supply of newer units may put downward pressure on the market rents of older rental stock, however, this is hard to predict with any degree of certainty.

The Assessment Act does not include any mechanisms which would permit the City to apply the new multi-residential property class apply only in situations where the developer/landlord agrees to provide a number of units at below market rents. Once the new class has been created, all properties in the class must be treated the same for property tax purposes. The new tax rate is applied to all properties in the class.

5.Tax Rate for the New Multi-Residential Property Tax Class and income taxes:

This report has recommended that the Chief Financial Officer and Treasurer report back to Council on the tax rate which would be applied to the new multi-residential property class. Based on Lampert's financial pro-formas, the tax rate should be set at the residential/farm rate to generate the greatest benefit. However, further analysis of the rate needs to be undertaken within the context of establishing rates for all other classes.

One impact which requires further consideration is the relationship between property tax savings and income taxes paid by the landlord. As a business operator, the landlord is permitted to claim tax reductions based on municipal property taxes paid. Reducing the tax rate from the current multi-residential level to residential/farm level, may actually serve to transfer costs from the federal/provincial governments to the municipality.

For example, assume that without a reduced tax rate, the landlord pays $100,000.00 in property taxes to the City. The landlord claims an income tax reduction based on this expenditure of $30,000.00 (assumes a 30 percent tax rate). Therefore, the City has "earned" $100,000.00 and the federal/provincial governments have "paid" $30,000.00. Assume the tax rate is reduced so that the landlord now pays $25,000.00 in municipal property taxes. The income tax reduction becomes $7,500.00. In effect, the City "earns" $75,000.00 less ($100,000.00 - $25,000.00), and the federal/provincial governments have "saved" $22,500.00.

However, this model assumes that new rental construction is occurring in the City and generating tax dollars. The reality is that the gap between the market rent and economic rent is so large, rental housing construction has virtually stopped.

6.Tax Shifts:

One impact of introducing a new multi-residential class with a lower tax rate than the existing rate for multi-residential properties, is that new construction will receive a benefit not currently available to existing stock. This is reasonable from two perspectives: (1) that the City is choosing to support additional rental housing construction in view of the limited supply currently available, and (2) equalizing the current multi-residential and residential/farm tax rates may ultimately only serve to increase landlord profits at the expense of home-owners. As mentioned earlier, reducing property taxes on existing residential units would have only limited impact on tenant rents. A previous report to the Assessment and Tax Policy Task force entitled Multi-residential Property Tax, Tax Policy Options, Report No.13, Clause 2, June 29, 1998 (see appendix 9) outlined how equalization would shift approximately $376 million from the multi-residential class to the residential class.

Conclusion:

If adopted, the new multi-residential property class can reduce the gap between the economic rent and market rent of new rental construction, and may positively impact on additional rental housing supply. Although having the new multi-residential property class in effect for eight years can improve the economics of rental housing construction somewhat, a permanent reduction is required to effectively stimulate construction. Therefore, this report also recommends requesting that the province permit the municipality to extend the deadline beyond eight years.

This report does not specifically address what the tax rate for this new class should be. It is intended that the tax rate may be set as near as possible to the tax rate for residential/farm class, although further analysis is required. It is recommended that the Chief Financial Officer and Treasurer report back to Council by year end on the tax rate which would be applied to the new multi-residential property class.

Contact Name:

Joanne Campbell, Phone: 392-7885, Fax: 392-0548

Paul Wealleans, Phone: 397-4208, Fax 392-3649

The Strategic Policies and Priorities Committee also submits the following joint report (October19,1998) from the Commissioner of Community and Neighbourhood Services and the Chief Financial Officer and Treasurer, addressed to the Assessment and Tax Policy Task Force:

Purpose:

To report back to the Assessment and Tax Policy Task Force in response to questions raised about legal, financial and income tax issues related to adoption of the new multi-residential property class in the City of Toronto.

Financial Implications:

None.

Recommendations:

It is recommended that Council receive this report for information.

Background:

As outlined in the previous report to the Tax Policy and Assessment Task Force, The Optional New Multi-residential Property Class, September 22, 1998, the Assessment Act allows the Minister of Finance to prescribe property classes, some of which may provide a municipality the option of opting to have the property class apply within that municipality by passing a by-law. For the new multi-residential property class to be in effect beginning with the 1999 taxation year, Council must approve a by-law before October 31, 1998 opting to have the class apply in the City of Toronto.

The new multi-residential property class consists of property that would otherwise have been in the multi-residential property class (i.e. residential buildings with seven or more units) but which units have been built or converted from a non-residential use pursuant to a building permit issued after the by-law was passed and which units were ready for occupation on or before the day as of which the land is classified for the taxation year. If City Council opts to have the new multi-residential property class apply within Toronto, Council can set a separate tax rate for that class. This rate will continue to apply to a property for up to eight years after construction, but would revert to the multi-residential tax rate thereafter. Rental residential buildings with fewer than seven units are within the residential/farm tax class and taxed at that rate.

At its July 21 and 23rd special meeting, City Council struck out Recommendation No. (2) of Report No. 13, Clause 2 of the Strategic Policies and Priorities Committee which recommended that Council pass a by-law to opt-in to the new multi-residential property class. At its meeting of July 29, 30 and31st, Council reopened the opting-in to this property class and referred the matter back to the Assessment and Tax Policy Task Force.

At its September 24, 1998 meeting, the Council Strategy Committee for People without Homes endorsed the staff recommendation that Council establish the optional class. This Committee is involved in work on an affordable housing supply strategy for the City of Toronto, and has recognized that reducing property taxes can be an important mechanism in making new rental housing construction economically possible.

At its September 28, 1998 meeting, the Assessment and Tax Policy Task Force requested additional information about the inter-relationships between reduced property taxes and income taxes paid by the landlord. Staff from the City's Housing and Finance divisions met with Councillor Balkissoon on October 8, 1998 to clarify concerns. At that meeting, Councillor Balkissoon requested a legal opinion about the risk to the City should it adopt the new class, preferably by outside council, an assessment of the potential financial risk in a worst case scenario, and information about the potential impact on tenant income taxes. The purpose of this report is to provide the information requested.

1.Legal Opinion:

In response to an issue raised by Councillor Balkissoon concerning the risk of a legal challenge to the adoption of the new multi-residential property class on the grounds of discrimination, the Solicitor advises that the risk of a successful challenge on such grounds is low.

As a creature of statute, a municipality may only exercise those powers expressly or impliedly conferred upon it by statute. Thus, it is only where expressly or impliedly authorized by statute, that a municipality may enact by-laws which discriminate between classes.

The Municipal Act provides express authority for municipalities to apply different tax rates to the different property classes as prescribed by the Minister of Finance pursuant to the Assessment Act. Subsection 368(2) of the Municipal Act provides that, for the purposes of raising the general local municipality levy, the council of a local municipality is each year required to pass a by-law levying a separate tax rate, as specified in the by-law, on the assessment in each property class in the local municipality rateable for local municipality purposes. The rates on the different classes of property must be in the same proportion to one another as the tax ratios established for the property classes are to each other (subsection 368(4) of the Municipal Act).

Section 7 of the Assessment Act provides that the Minister shall prescribe classes of real property for the purposes of that Act. Pursuant to Ontario Regulation No. 282/98 ("O.Reg. 282/98"), twelve property classes, including the new multi-residential property class, have been prescribed.

Subsection 10(1) of O.Reg. 282/98 provides that the new multi-residential property class applies within a municipality, the council of which is required to pass a by-law establishing tax ratios under section 363 of the Municipal Act, only if the council of the municipality passes a by-law opting to have the class apply within the municipality. The council of a municipality that passed a by-law opting to have the class apply, may also pass a by-law opting to have the class cease to apply, but such a by-law will not affect the classification of land for which a building permit has already been issued (subsection 10(4) of O.Reg. 282/98).

O.Reg. 282/98 details the land which is included in the new multi-residential property class. The class consists of land that would otherwise have been in the multi-residential property class but which satisfies the following two conditions:

(1)the units on the land have been built or converted from a non-residential use pursuant to a building permit issued after the by-law adopting the new multi-residential property class was passed; and

(2)the units on the land were ready for occupation on or before the day as of which land is classified for the taxation year. (subsection 10(2) of O.Reg. 282/98)

The property will cease to be classified in the new multi-residential property class after it has been so classified for eight taxation years, after which it will revert to the multi-residential property class (subsection 10(3) of O.Reg. 282/98).

In order to have the new multi-residential property class apply within a municipality for a year after 1998, and for each year afterwards when the by-law is required, the council of the municipality must opt to have the class apply prior to October 31 of the previous year (section 3.2 of the Assessment Act). However, as the general local levy must be an amount sufficient for payment of the estimated expenditures adopted for the year, a tax rate for 1999 cannot be set for the new multi-residential class until after the estimates for 1999 have been adopted (section 367 and 368 of the Municipal Act).

Thus, pursuant to the Municipal Act and the Assessment Act, a municipality has express statutory authority to opt to have the new multi-residential property class apply in that municipality, and to levy a different tax rate on that class, provided that the tax rate levied on the new multi-residential property class is in the same proportion to other property classes as the established tax ratios. Accordingly, a by-law levying a different tax rate on that class would not be found to be outside of the municipality's jurisdiction as provincial legislation expressly authorized this different treatment of property classes.

Furthermore, with respect to the equality provisions of the Charter of Rights and Freedoms (the "Charter"), section 15 of the Charter states that:

"Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability."

Section 15 does not guarantee that the law must treat everyone equally. Rather it merely prohibits those violations of equality that amount to discrimination on the grounds listed in section 15 or on analogous ground. The courts have held that in order for a ground of discrimination to be prohibited by section 15 it must be analogous to those listed in section 15, and that such analogous grounds must relate to immutable personal characteristics. Furthermore, in order to find a violation of the Charter a court must find that the legislation does not constitute a "reasonable and demonstrably justified limit" on the right to equality without discrimination.

The classification of property is unlikely to be found to be an immutable personal characteristic upon which a discrimination claim under section 15 could successfully be based. The nature of property which one owns is not analogous to one's gender, age, or race. Rather, it is based on a choice to own a certain kind of property.

Councillor Balkissoon has expressed an interest in retaining outside counsel to provide a legal opinion on the issue addressed above by the City Solicitor. It should be noted that only very limited funds remain available in the Legal Department's budget for retaining outside counsel. Furthermore, any delay in opting-into the property class pending such an outside opinion, should one be requested, would result in Council being unable to meet the October 31, 1998 deadline for opting to have the new multi-residential property class apply in the City of Toronto for the 1999 taxation year.

2.Financial Risk:

As stated above, the City Solicitor is of the opinion that the risk of a successful challenge on the grounds that adoption of the new multi-residential property class is discriminatory is low. Based on this opinion, the risk of financial loss to the City if such a challenge were made and upheld by the Courts is very minimal and, in any event, is highly dependant on the particulars of the challenge itself. As a result, it is difficult to make any realistic assessment of financial risk. For example:

(i)The challenge would need to be successful, meaning that the Court would set aside all or part of any enabling provincial legislation which permits separate tax classes to be established. Would the province successfully appeal such a ruling? Would alternate legislation be passed? Would compensation be provided to municipalities? Would the ruling be limited to just residential and multi-residential classes, or extended to cover all classes of property which have different tax rates (commercial, industrial, etc.)?

(ii)If successful, would the Court then rule that the tax rate for a single rental property be reduced, or all rental properties in the City and/or the province? Would the rate be reduced to the residential/farm rate or some other uniform amount?

(iii)If successful, would the Court require the rate change to come into effect immediately or over a period of time?

Each of these assumptions, alone or in combination, would result in a large range of potential financial outcomes for the City. If a Court challenge resulted in the City being required to immediately equalize the residential and multi-residential tax rates of all properties, then the tax rate for the residential class would increase from 1.25 percent to 1.58 percent, and the rate for the multi-residential class would decrease from 4.64 percent to 1.58 percent. Based on final 1998 tax figures, there would be a 65.94 percent decrease in taxes for multi-residential properties ($380.8million) and a corresponding increase of 25.65 percent ($380.8 million) for the residential class. If instead the Court ordered that the multi-residential tax rate be decreased to the residential rate (1.25 percent), without an offsetting increase in the residential rate, there would be a tax revenue loss of $420 million. However, based on the opinion of the City Solicitor, the risk is minimal.

3.Inter-relationships between reduced property taxes and income taxes:

Councillor Balkissoon has expressed a concern that, since property taxes are deductible business income for landlords (i.e. they reduce income taxes) it does not matter whether or not property taxes are high, and reducing municipal earnings from property taxes only benefits other levels of government in that income tax deductions are reduced (so more income tax is paid by the landlord to the federal and provincial governments, and less property tax is paid to the City). The impact is not that straight forward. Certainly income taxes payable on the project would increase; but only part of the "savings" due to lower property taxes flows on to the federal and provincial governments through higher income taxes. Most of the savings stay with the investor to help make rental investment more attractive.

The same is true for tenants. Concern has been expressed that reduced property taxes will reduce rents, and lower rents paid means that the Ontario Income Tax Credit will be reduced. If the property tax reduction actually did contribute to lowering rents, tenants would likely be better off with a reduction to their rents rather than from claiming a partial credit on their income taxes. For example, assuming a rent of $1,000.00 per month (approximately the current average rent for a three bedroom unit), the Ontario Tax Credit for a family of four (2 adults, 2 children) earning $40,000.00 per year (after RRSP and Childcare deductions) would be about $70.00 for both rent and sales tax credits. Assuming that half the credit is due to rent payments, this would be roughly equivalent to a rent reduction of about $3.00 per month.

In reality, however, the new class would likely not have any impact on Ontario Tax Credits. As mentioned in the September 22, 1998 report, the advantage of establishing the new class (assuming that the tax rate is set at the residential/farm rate) is that the economic cost of building the rental unit is reduced -- it is still not reduced enough to make construction feasible with just market level rents but it is a start. In a report prepared for the Province in 1995 (The Challenge of Encouraging Investment in New Rental Housing in Ontario) it was concluded that the rent the market will bear for a unit (market rent) is about $3,000.00 per year lower than the rent the landlord would have to charge to cover the costs of that unit (economic rent). By reducing property taxes, the gap between the economic rent and market rent is reduced by about $1,200.00 annually. Therefore, we can expect that any new rental development which may occur will have rents set at the higher end of the market. Given the rules around claiming a tax credit, is doubtful that any new rental housing created in response to adopting the new class and establishing a lower tax rate would be targeted households with income levels so low as to be eligible for Ontario Income Tax Credits.

The exception is non-profit rental housing. The City has embarked upon a program approved by Council in July 1998 to undertake a variety of affordable housing demonstration projects. It is highly likely that many of these projects will be developed and operated by non-profit organizations. These groups are typically not permitted to register units as condominium and, therefore, without the adoption of the optional class and setting of a reduced tax rate, would pay the higher multi-residential rate. There is little difference between the cost of producing a non-profit rental unit versus the cost of producing a private rental unit -- non-profits are faced with the same difficulties in "making the numbers work" for development to be feasible. Asking the Province to change its assessment methodology so as to reflect a reduced market value for non-profits may make sense in the long term (further research is required and the timing may be more appropriate for 2001 when market values are re-assessed), as does a request to permit the City to establish a new class specifically for non-profit housing; however, a more effective and immediate response by the City would be to establish the optional class.

Conclusion:

The Solicitor advises that the risk of a successful legal challenge to the adoption of the new multi-residential property class on the grounds of discrimination is low. Finance advises that in a worst-case scenario, the financial risk to the City may be a tax revenue loss of $420 million (assumes that every multi-residential property automatically has its property taxes reduced to the current residential/farm rate with no off-setting increase to existing properties in that class). If, instead, the tax rates for existing multi-residential and residential/farm classes were immediately equalized, the City would not lose tax revenues although there would be a property tax shift of $380.8 million from the existing multi-residential properties to properties in the residential/farm class. Reducing property taxes for new residential construction to the residential/farm rate will have some minor impacts on income taxes paid by the landlord and by tenants.

O.Reg. 282/98 of the Fair Municipal Finance Act requires that all buildings registered as condominiums be assessed and taxed at the residential/farm rate. Therefore, developers can already access the lower taxes simply by registering buildings as condominiums -- whether the units are subsequently rented or not.

Contact Names:

Joanne Campbell, Phone: 392-7885, Fax: 392-0548

Paul Wealleans, Phone: 397-4208, Fax: 392-3649

The Strategic Policies and Priorities Committee also submits the following communication (October26,1998) from Ms. Anne Golden, Chair, Homelessness Action Task Force:

I wish to advise you that the Mayor's Homelessness Action Task Force is in support of recommendations Nos. 1 and 2. We have not discussed recommendation No. 5. These recommendations are from the Assessment and Tax Policy Task Force to the Strategic Policies and Priorities Committee and to Council for the meeting to be held on October 28, 1998. Please see our attached letter to the Mayor.

--------

(Communication dated October 26, 1998,

addressed to Mayor Lastman from

Ms. Anne Golden, Chair, Homelessness Action Task Force)

We are writing to express our support for immediate action on the homelessness crisis anticipated this winter. Although the Task Force is making good progress on a long-term comprehensive strategy to address homelessness in Toronto, we recognize that the City is facing an acute shortage of shelter beds for this winter. We will have a major crisis unless there is a concerted effort to address this emergency in the short-term.

Winter Action Plan:

Initially, we felt it would be necessary for the Task Force to develop a Winter Action Plan to ensure that all homeless people have access to a safe, warm place to sleep at night, as well as enough food and other essentials to meet basic needs. After working closely with City staff on a Winter Action Plan, the Task Force is confident that the City is developing an effective strategy for single adults which brings to bear all available City resources, in partnership with community agencies, as well as generous contributions of private citizens and the business community.

With respect to the predicted shortfall of emergency shelter for families, the Status Report on Hostel Services for Families indicates that with one shelter reopening this October, and with the ongoing practice of placing some families outside Toronto, the City should be able to cope over the next three months. One other possibility, not raised in that report, is to look at using a hospital site or other facility to provide additional space for families in crisis. However, what this report underscores is the need to address the issue of growing family homelessness as quickly as possible.

Ultimately, homelessness can only be solved by all three levels of government working together and making this issue a priority. In the short-term, we are grateful to the Federal Government, in particular to the Department of National Defence, for making an Armoury available to the City for use as an overnight shelter, if it becomes necessary at some point this winter. Clearly this is only a stop-gap measure. It would be preferable to find space that can be used on a longer term basis. The Task Force endorses the City's efforts to secure additional, suitable facilities in appropriate locations throughout Toronto. The Task Force also recognizes the contribution of the Province in allowing for the expansion of emergency shelter beds, through its 80-20 cost-sharing formula with the City.

Property Tax Modification:

Research for the Task Force confirms that developing new affordable rental units is not possible without government involvement and we will present a detailed housing supply strategy in our final report. In the meantime, we understand that City Council is currently considering establishing a special property assessment class for new multi-residential rental buildings, with a view to stimulating affordable rental production. This is a result of the new provisions from the Province which enable municipalities to establish a separate tax class for new multi-residential rental buildings for the first eight years of each project's life. Recognizing the urgency of creating additional housing for low-income people, the Task Force would like to register support for the recommendations contained in the September 22, 1998 Housing/Treasury report on the subject. We are endorsing this action now because City Council must pass a by-law prior to October 31, 1998 in order to have the new class apply to the City of Toronto beginning in 1999.

Food Access Grants:

The Task Force visited many hostels, drop-ins, and other programs for homeless people. Everywhere we were struck by the dedication of the staff in attempting to meet increasing needs with scarce resources. We've seen first-hand how much people depend on these agencies for food, shelter (both day and overnight), as well as for vital social connections and linkages to an array of supports and services. We endorse the efforts of the City (not to mention United Way) in supporting our community partners. The Task Force understands that for the past two years the City's Public Health Department (through the former City of Toronto) provided funds through the Food Access Grants to agencies, such as drop-ins, the volunteer-run Out of the Cold program, and street patrols to purchase equipment and food. The Task Force requests that the City analyse the impact of not renewing these Food Access Grants.

Request to Declare Homelessness a National Disaster:

The Task Force is aware that Council will be asked on Wednesday, October 28, 1998 to support a declaration calling upon "the provincial and federal governments to declare that homelessness is a national disaster". From our review of the situation in several large Canadian cities, we can confirm that homelessness is, indeed, a mounting crisis across the country. We would caution, however, not to allow the current emergency situation to deflect attention from addressing the root causes of homelessness.

In its Final Report, the Task Force will present detailed recommendations on a comprehensive homelessness prevention strategy, including shelter allowances and rent supplement, and other forms of housing assistance; a coordinated and effective service system which recognizes the different needs of the different sub-populations; a health strategy, including issues related to mental health and addictions; supportive housing; and a detailed housing supply strategy which recognizes the need to both preserve existing housing stock and create new housing supply.

We look forward to submitting our full report to you early in the new year.

--------

The Strategic Policies and Priorities Committee also had before it the following communications which were circulated to all Members of Council with the agenda of the Strategic Policies and Priorities Committee for its meeting of October 28, 1998, and copies thereof are on file in the office of the City Clerk:

-(October 20, 1998) from Mr. Murray Lowe

-(October 1998) from Mr. Greg Lampert, Economic Consultant

2

Court Ordered Recount in Scarborough-Malvern

(City Council on October 28, 29 and 30, 1998, adopted the following recommendations:

"It is recommended that:

(1)+the report dated October 28, 1998, from the City Solicitor, be received;

(2)Council indicate its intent to retain the services of Mr. Ayers to provide City Council with a synopsis report on the election recount, together with recommendations on how the City of Toronto could request the provincial government to amend the legislation so that individuals such as Councillor Balkissoon are not economically challenged out of office; and

(3)the City Solicitor be requested to:

(a)submit a report to the next meeting of the Strategic Policies and Priorities Committee on the fee requested by Mr. Ayers;

(b)submit a report to the Corporate Services Committee on the feasibility of Council establishing a mechanism for its own automatic recount procedures for the next municipal election; and

(c)seek a court order directing the City to pay the reasonable costs of Councillor Balkissoon and Ms. Montgomery, including legal costs incurred with respect to the court-ordered recount in Scarborough-Malvern.")

The Strategic Policies and Priorities Committee reports having requested the City Solicitor to report directly to Council on the Court Ordered Recount in Scarborough-Malvern as set out in the confidential communication (September 23, 1998) from Councillor Balkissoon, which has been forwarded to Members of Council under separate cover, and requests City Council to schedule an in camera session at its meeting to be held on October28, 1998 to consider the requested report.

(City Council on October 28, 29 and 30, 1998, had before it, during consideration of the foregoing Clause, the following report (October 28, 1998) from the City Solicitor:

Purpose:

The purpose of this report is to respond to the September 24, 1998 request of the Strategic Policies and Priorities Committee that the City Solicitor and the City Clerk report to an in-camera session of the Committee on:

(1)the issue contained in the communication (September 23, 1998) from Councillor Balkissoon; and

(2)the option of retaining the same solicitor who would give a factum report on issues identified in the recount, which could assist the City in seeking legislative amendments to the Elections Act.

and the further request of Committee made this morning, that the request that the City Solicitor submit the report directly to City Council in camera today.

Funding Sources, Financial Implications and Impact Statement:

None.

Recommendations:

It is recommended that this report be received for information.

Council Reference/Background/History:

The Strategic Policies and Priorities Committee, at its meeting of September 24, 1998, considered in camera a communication dated September 23, 1998 from Councillor Balkissoon respecting the court ordered recount in Scarborough Malvern - Ward 18 and directed that the City Solicitor and City Clerk report on the issues contained in it. In his communication, Councillor Balkissoon states that the Municipal Elections Act has been revised respecting the payment of recount expenses and he requests the Committee to direct the Legal Division to report on the issue and bring forward recommendations for legislative change for the next election. He also states that he has investigated several recount incidents in past municipal elections within the former cities and has found that the municipal councils had absorbed the costs of the winning candidate incidental to the recount. Councillor Balkissoon also advises that Mr. Garrett has denied his request that the City pay his recount expenses on the grounds that the current Act does not allow the City to pay them. Councillor Balkissoon states: "I would like to formally request that Council deal with my situation and provide assistance for my legal recount cost directly or as a form of a grant such that these costs are not a personal liability as being ruled by the administration."

The Strategic Policies and Priorities Committee also requested the City Solicitor and City Clerk to report on the option of retaining Councillor Balkissoon's solicitor to report on issues identified in the recount that could assist the City in seeking legislative amendments.

Comments and/or Discussion and/or Justification:

(1)Legislation concerning election recount expenses

Municipal elections prior to 1997 were governed by the provisions of the Municipal Elections Act, R.S.O. 1990, c.M.53, as amended. Section 100 of that Act provides as follows:

"100.(1)Unless a court otherwise orders, the costs, including the costs of the candidates, of a recount under this Act whether conducted by a recount officer or a judge shall be borne by the municipality, school board or local board to which the recount relates.

(2)Despite subsection (1), if a court finds that an application or appeal is frivolous or vexatious, the court may order that the costs of the application or appeal be paid by the person who made the application or appeal."

The 1997 election however was governed by the provisions of the Municipal Elections Act, 1996 being Schedule A to Bill 86, an Act to provide for better local government by updating and streamlining the Municipal Elections Act, the Municipal Act and related statutes. Bill 86 received Royal Assent on December 19, 1996. The provisions of the Municipal Elections Act, 1996 concerning recounts, which begin at section 56 of the legislation, are substantially different than the provisions of the previous legislation. The former legislative requirement for municipalities, school boards or local boards involved in a recount to pay all the costs associated with it have been eliminated. Provincial policy staff who were involved in these amendments advise that there was a concern that this requirement was being abused given the exorbitant election recount expenses that were being incurred by some candidates.

In place of the requirement for municipalities to pay the recount expenses, the Municipal Elections Act, 1996 treats election recount costs as part of a candidate's campaign expenses. Subsection67(2)7. clearly provides that expenses relating to a recount are election campaign expenses for purposes of the Act. Subsection 68(1)5 of the Municipal Elections Act, 1996 deems the election campaign period to recommence once expenses are incurred for a recount. In so doing, the Act provides for election recount expenses to be paid out of surplus campaign funds. This provision is meant to allow candidates the full opportunity to fund-raise to pay off any expenses a candidate incurs as the result of a recount.

(2)Municipal Grant

In his communication, Councillor Balkissoon also formally requests that Council consider a grant so that these recount expenses are not a personal liability. All election campaign expenses will ultimately become the personal liability of a candidate who is unable to raise sufficient funds to cover them. Subsection 113(1) of the Municipal Act provides general authority for council to make a grant for any purpose that, in the opinion of the council, is in the interest of the municipality. Despite this broad authority, the ability of the city to make a grant to a councillor to pay for election recount expenses however is not without doubt. Subsection 70(4)3 of the Municipal Elections Act, 1996 clearly prohibits a municipality from making a contribution to an election campaign. If challenged, such a grant could be determined by a court to be a contribution in contravention of this provision because it is being used to pay for an election-related matter. A court would likely view this as an attempt to do indirectly what Council is prohibited by statute from doing directly. It is therefore recommended that a grant not be considered in these circumstances.

(3)Retaining Councillor Balkissoon's legal counsel

The Strategic Policies and Priorities Committee also requested that the City Solicitor and the City Clerk report on "the option of retaining the same solicitor who would give a factum report on issues identified in the recount, which could assist the City in seeking legislative amendments to the Elections Act". The City participated in this appeal because the legal issues of the interpretation of the Municipal Elections Act, 1996 would have had consequences for future elections conducted by the use of vote tabulating equipment. I have previously reported the outcome of that court decision. (Minute No. 714, Council meeting of May 13 and 14, 1998).

In that case, Edith Montgomery applied to the court for a recount of the ballots in Ward 18 on the grounds that the clerk failed to incorporate the provisions of subsections 47(5)(e) and (f) of the Municipal Elections Act, 1996 respecting the rights of scrutineers to re-examine ballots as they are being counted and to make objections, violated the principles of the Act. While the motions judge agreed, the judges of the Court of Appeal who heard this matter did not. The Court of Appeal determined that "where electronic vote counting equipment has been duly authorized, the failure of the municipal clerk to build in the procedures found in sections 47(5)(e) and (f) of the Act will not render the procedures established by the municipal clerk inconsistent with the `proper majority vote' principle, and the motions judge erred in concluding on that basis that there were sufficient grounds to doubt the validity of the count."

Ms. Montgomery had also raised concerns respecting the accuracy of the vote count based on the manner in which the optical scanners had been programmed. On this issue, the Court of Appeal concluded that "having regard to the fact that the optical scanners were programmed to count, as a valid vote, any mark located in the blank space, including a fly speck or an errant dot, this may well have resulted in votes being counted as valid votes when they clearly ought not to have been". In reaching this conclusion, the court affirmed the order of the motions judge that a recount proceed. Councillor Balkissoon was not a statutory party to the recount but was an intervenor. In respect of costs, the court ordered the City to pay Ms. Montgomery's costs of the court proceedings on a party and party basis and stated that there would be no order as to costs with respect to the intervenor, Councillor Balkissoon. The court did not order the City to pay either Ms. Montgomery's or Councillor Balkissoon's costs of the recount itself. The provisions of the Municipal Elections Act, 1996 which provide that the costs of a recount are election campaign expenses allowed both candidates to fund raise to pay these costs.

I cannot recommend that the City retain Councillor Balkissoon's solicitor to report on the issues identified in the recount. The issues are clearly set out in the decision of the Court of Appeal, a copy of which is attached. As well, the City was a party to the proceedings and was represented by legal counsel throughout. Also, given Councillor Balkissoon's role in the proceedings, as an intervenor, the role of the two solicitors representing him was limited. Consequently, I can see no benefit of retaining these solicitors to prepare such a report, particularly given the current constraints on the City's financial resources.

(4)Recommendations for legislative change

City Council, at its meeting held on July 29, 30 and 31, 1998, adopted without amendment a motion by Councillor Tzekas directing the City Clerk and the City Solicitor to review certain circumstances that occurred in Ward 19 during the last municipal election and report to the Corporate Services Committee. That report is to include any possible contraventions of the Municipal Elections Act and make recommendations for any amendments that are necessary to the Municipal Elections Act to prohibit such conduct in the future. The City Clerk and City Solicitor's report will be expanded to include any recommended amendments to the Municipal Elections Act, 1996. Staff are still in the process of analyzing the full impact of the legislative changes in the context of the 1997 election, and this report is expected to be finalized shortly. The legislative changes respecting the payment of recount expenses will be reviewed and any recommendations for revisions will be made at that time.

Conclusions:

The Municipal Elections Act, 1996 substantively changed previous legislation respecting who is responsible for paying election recount expenses and provides that expenses relating to a recount are now election campaign expenses. In the event of a recount, the Act deems the election campaign period to recommence so that candidates can fund raise to pay such expenses. Previous legislation required the municipality, school board or local board to which the recount applied to fund all recount costs. If the City was to provide a grant under the Municipal Act to fund Councillor Balkissoon's recount expenses, a court could consider such a grant to be a contribution contrary to the Municipal Elections Act, 1996 because it is to be used to pay for an election-related matter. It would likely be viewed by a court as an attempt to do indirectly that which Council is prohibited from doing directly by statute. Consequently, a grant under the Municipal Act should not be entertained in these circumstances.

The City Clerk and the City Solicitor will be reporting to the Corporate Services Committee on recommended amendments to the Municipal Elections Act, 1996 in the near future.

Contact Name:

Mary Ellen Bench, Legal Services, 392-7245.)

(City Council also had before it, during consideration of the foregoing Clause, a confidential communication (September 23, 1998) from Councillor Bas Balkissoon, Scarborough Malvern, such communication to remain confidential in accordance with the provisions of the Municipal Act.)

(Councillor Balkissoon, at the meeting of City Council on October 28, 29 and 30, 1998, declared his interest in the foregoing Clause, in that he is a City Councillor for Ward 18, Scarborough-Malvern.)

(Councillor Cho, at the meeting of City Council on October 28, 29 and 30, 1998, declared his interest in the foregoing Clause, in that he is a City Councillor for Ward 18, Scarborough-Malvern.)

Respectfully submitted,

CASE OOTES,

Chair Pro Tem

Toronto, October 28, 1998

(Report No. 22 of The Strategic Policies and Priorities Committee, including additions thereto, was adopted, as amended, by City Council on October 28, 29 and 30, 1998.)

 

   
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