April 12, 1999

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April 12, 1999

To:Budget Committee

Strategic Policies and Priorities Committee

From:City Clerk, Assessment and Tax Policy Task Force

Subject:Tenant Tax Notification - Reduction In 1999 Finance Department Operating Budget

Recommendation:

The Assessment and Tax Policy Task Force recommends that:

(1)full notification of tax increases and decreases to all tenants and landlords in the City of Toronto be undertaken again in 1999;

(2)the Province be requested to undertake the notification process and cost for all tenants and landlords as it relates to the rent reduction provisions of the Tenant Protection Act;

(3)the Province of Ontario be requested to review and amend Ontario Regulation 455/98 which requires that a ratio of 20% of taxes to rental income be used in the calculation of rent reductions and ensure it reflects a more appropriate ratio for rental properties of less than 7 units and that it be completed prior to September 1999 which is the latest date for notices to be mailed to landlords in 1999;

(4)the Assessment and Tax Policy Task Force refer this report to the Budget Committee for its consideration; and

(5)required funding be provided to implement Recommendation No. (1).

Recommendation No. (5) was carried on the following division of votes:

Yeas:Councillors Adams, Kinahan, Augimeri, Flint and Walker - 5

Nays:Councillor Bossons - 1

Background:

The Assessment and Tax Policy Task Force, on April 1, 1999, had before it a report (March 29, 1999) from the Chief Financial Officer and Treasurer respecting Tenant Tax Notification - Reduction in 1999 Finance Department Operating Budget, and recommending:

1.That full notification of tax increases and decreases to all tenants and landlords in the City of Toronto be undertaken again in the year of the next general reassessment (2001);

2.That only mandatory notification to tenants and landlords of multi-residential properties as required under the Tenant Protection Act be undertaken for 1999;

3.That the Province be requested to undertake the notification process and cost for all tenants and landlords as it relates to the rent reduction provisions of the Tenant Protection Act;

4.That the Province of Ontario be requested to review and amend Ontario Regulation 455/98 which requires that a ratio of 20% of taxes to rental income be used in the calculation of rent reductions and ensure it reflects a more appropriate ratio for rental properties of less than 7 units and that it be completed prior to September 1999 which is the latest date for notices to be mailed to landlords in 1999; and

5.That the Assessment and Tax Policy Task Force refer this report to the Budget Committee for its consideration.

The Task Force's recommendations are noted above.

City Clerk,

Assessment and Task Policy Task Force

Frances M. Pritchard/bb

990401.4

March 29, 1999

TO:Assessment and Tax Policy Task Force

ORIGIN:Chief Financial Officer and Treasurer

SUBJECT:Tenant Tax Notification - Reduction in 1999 Finance Department Operating Budget

Purpose:

To recommend a reduction in the 1999 Operating Budget of the Finance Department relating to the optional expanded tenant notification program. In 1998, City Council directed that the Chief Financial Officer and Treasurer to not only notify tenants in multi-residential apartment buildings of tax decreases greater than 2.49% (as is mandatory under the Tenant Protection Act) but to expand the notification program to all tenants in the City which increased the budgetary cost from $8,400 to $453,000.

Financial Implications:

A reduction in the notification of tenants carried out by the City in 1998 to that level that is a mandatory requirement under the Tenant Protection Act for 1999 would decrease the budgetary requirement from $453,400 to $21,800 which is a reduction $431,600. Since 1999 is the second year of the City's three year capping program for the multi-residential class, it is estimated that the number of properties eligible for a tax decrease greater than 2.49% is double that of 1998 and the costs of the notices would double from $8,400 to $16,800. An telephone inquiry line and communications support would add another $5,000 with the total estimated budget for 1999 of $21,800. As part of the review of potential budget reductions, the Finance Department 1999 Operating Budget currently does not include the $453,000 in funds to provide the program as executed in 1998.

Recommendations:

1.That full notification of tax increases and decreases to all tenants and landlords in the City of Toronto be undertaken again in the year of the next general reassessment (2001);

2.That only mandatory notification to tenants and landlords of multi-residential properties as required under the Tenant Protection Act be undertaken for 1999;

3.That the Province be requested to undertake the notification process and cost for all tenants and landlords as it relates to the rent reduction provisions of the Tenant Protection Act;

5.That the Assessment and Tax Policy Task Force refer this report to the Budget Committee for its consideration.

Background:

At its meeting of March 5, 1999, the Budget Committee considered the 1999 Operating Budget of the Finance Department. Contained within the budget was a reduction that reflected a limited tenant tax notification in 1999.

At its meeting of December 16, 1998 (SPP Report No. 25, Clause 1), City Council approved the process for sending notices of 1998 property tax change to all tenants in the City and provided $453,000 from Corporate Contingency and "included in the Finance Department's 1999 Operating Budget if Council wishes to continue this extent of notification in 1999 and future years." It also recommended that "this notification program be provided on an on-going basis, but that it be reviewed after the first year and adjusted as required." This report provides a review of the 1998 program and recommends as a result of the review that only the mandatory notification process be undertaken for 1999.

Comments:

The Tenant Protection Act required the City to send notices of property tax decreases to landlords and tenants of multi-residential properties (7 units or more) where the tax decrease was more than 2.49% in 1998. There were 5,552 notices mailed. The deadline for the City to mail these notices was December 15, 1998. The notices provide for automatic rent reductions for tenants due to the tax decrease. In 1999 and subsequent years, notices for landlords are to mailed between June and August. For tenants, notices are to be mailed between September and December.

The tax relief mechanisms (phase-in and capping for a maximum of five years) adopted by City Council in July 1998 significantly reduced the number of rental properties that received a tax decrease of greater than 2.49% and consequently also reduced the number of tenanted units eligible for automatic rent reductions. For 1999, it is estimated that the total number of properties eligible for the mandatory decrease in the multi-residential class will double, with the result that the number eligible for automatic rent reductions will also double. For 1999, taxes will be capped at 4.8% over 1997 levels. As a result, it is estimated that the amount withheld for decreases will increase as well since more taxes are being increased by 4.8%. An increase in the amount to be provided to those properties getting tax decreases will increase as well. The amount withheld for decreases for 1999 will be calculated as part of the final budget and tax rate process and as an exact number is not available at this time, it is recommended that for the purposes of the tax notification, the amount of the budget be doubled.

City Council expanded this notification program to include all tenanted units in the City whether there was a tax increase or decrease.

1998 Program Results:

In total, there are 497,479 notices for landlords and tenants. The last phase of the notification program, relating to those tenanted properties with tax decreases less than 2.5% or with tax increases will be sent out in the next two weeks. The following table shows distribution of total notices:

Number of Tenant Tax/Rent Notices and Budgetary Costs - 1998 Program

Number of NoticesTotal Cost

Mandatory (TPA)5,552$8,400

Discretionary (Council)491,927$383,134

Communication

(Inquiry Line/News Ads)N/A$61,866

Total497,479$453,400

Of the 142,172 notices already mailed, approximately 4% or 5,600 have been returned from Canada Post as undeliverable.

Mandatory Notices: There were 63 multi-residential properties with 5,489 tenanted units that received a total of 5,552 mandatory notices from the City as required under the Tenant Protection Act. These tenants were able to automatically reduce their rents. The cost to the City of these notices was $8,400.

Discretionary Notices: The number of notices for the balance of tenants and landlords in the City totalled 491,927.

There were 51,570 properties with 85,050 units in the Residential property class (less than 7 units) for which the taxes decreased greater than 2.49% and for which automatic rent reductions apply but as they are not in the multi-residential class, notification is not mandatory under the Act. The mailing of these notices (total of 136,620) caused the most concern and anger from the landlords of small buildings mainly due to the formula the City is required to use under the provincial legislation but also because many of these landlords were not aware of the automatic rent reduction provisions of the Tenant Protection Act. This group of landlords include those who rent single family houses, condominiums, duplexes, triplexes or small walk up apartments with less than 7 units.

The formula to calculate automatic rent reduction requires that a proportion of 20% of taxes to total rental income be used. While this ratio generally holds for multi-residential properties, the ratio is generally much lower in rental properties with less than 7 units. The result of using a 20% ratio is that the calculated rent reduction on the tenant notice informed tenants of a rent reduction which was actually greater than the taxes saved by the landlord. For example, a reduction based on the 20% formula may result in a decrease in rent of $300 for a tenant whereas, in fact, the landlord may have received only a decrease of $250 in taxes. Under the Act, the tenant is therefore entitled to reduce the rent by more than the actual tax decrease. For the landlord to rectify the situation so that the rent reduced equals the actual tax decrease, an application to the Ontario Rental Housing Tribunal at a cost of $45, plus the landlord's time, is required. An application must be made annually.

The 20% ratio is regulated by the Province and given feedback from landlords of small rental properties, either the calculation or the mechanism/process to correct the amount of the rent reduction must be made more flexible to address the income situations of smaller rental properties. It became very clear, that this incorrect ratio for rental calculations created strained relationships between landlords and tenants and resulted in financial discrepancies that need adjustment. Lack of access to rental income data by municipalities eliminates their ability to determine actual tax to rental income ratios for individual properties. The collection and update of rental income data is not a municipal responsibility but a provincial one. The Province has rental income data, which was used in its 20% calculation, and it is provincial legislation that governs tenant/landlord issues, including the requirement that municipalities notify tenants and landlords of automatic rent reductions. Therefore, it would seem reasonable that the Province review this data and provide either a revised ratio(s) for the smaller apartment buildings to ensure smaller apartment properties are treated in a more equitable manner or change the Tribunal process to more easily permit the calculation to be altered. It is imperative that this review of the ratio be completed prior to the notices being sent out in 1999 to prevent this problem from occurring again.

The Province should be requested to undertake the notification process and inquiry line as included under the Tenant Protection Act as it is provincial legislation that requires the notices be sent and has resulted in a further download to municipalities. Municipalities would provide tax impact data for inclusion.

The balance of the discretionary notices for those properties with a tax decease of 2.49 % or less or with tax increases total 355,307. A tax reduction of less than 2.49% does not result in an automatic rent reduction and the tenant must apply (and pay a $45 fee) to the Ontario Housing Rental Tribunal. The maximum rent reduction of 0.49% (2.49% x 20%) that could be achieved may not be considered to be worth an application to the Ontario Rental Housing Tribunal by a tenant because of the minimal savings and application fee required. It is uncertain how many tenants will make application to the Tribunal for the reduction.

For properties that experience tax increases, landlords must apply to the Tribunal for above guideline increases.

The total 1998 budgetary cost of the discretionary notices was $383,134.

Other Issues:

Since there are a total of 497,479 notices as part of the notification program, a communications strategy to respond to questions and inquiries was developed. Due to the lack of internal resources, two consultants - one for landlords and one for tenants - were retained to primarily set up telephone hotlines to respond to inquiries, assist City staff to develop the notices and to provide input at public meetings.

The telephone hotlines have been in operation since late December 1998 and will continue for a two week period following the mailing of the last notice. It is expected the hotlines will close by the end of April. On average, the tenant hotline continues to handle 100 calls per day. At peak periods - shortly after earlier mailings - calls reached 300 per day. Many tenants had questions that related to other provisions of the Act such as eviction procedures, maximum rents and application deadlines.

Given that there are less landlords than tenants, the number of calls to the landlord hotline were significant but not at the same levels as the tenant hotline. However, many of the calls to the landlord line lasted 20 - 30 minutes as most calls were from landlords of smaller properties who were not familiar with the automatic rent reduction provisions of the Tenant Protection Act. Many of their questions also extended well beyond the rent reduction issue.

Clearly, such a widespread notification generates significant feedback and response. In this case, the number of inquiries was more than anticipated and exceeded the scope of the rent reduction focus. Many questions related to broader tenant/landlord and housing issues for which other sources - such as the Ontario Rental Housing Tribunal, Ministry of Housing and Federation of Metro Tenants Association - would be in a better position to respond. These types of inquiries and concerns legitimately fall under the broader realm of housing. The Shelter, Housing and Support Division of Community and Neighbourhood Services is an area of housing expertise within the City and should the City be required to continue the notification process, its assistance should continue. The purpose of the hotline was to provide additional information, specifically on the rent reduction notices. Although inquiries cannot be limited to a particular focus of rent reduction, resourcing became a serious issue. As noted previously in this report, the notification process might better be undertaken by the Province.

Public meetings were also held across the City and advertised in daily newspapers, weekly neighbourhood papers and selected ethnic papers. Six meetings were held for tenants and two held for landlords. The meetings were held in each of the six former area municipalities and ran between January 14, 1999 and February 22, 1999. The format of the meetings included an overall presentation of the notification program and how tax changes may affect rents as well as a question and answer period. The latter generated a number of questions that, again, related to broader tenant/landlord and housing issues in addition to those specifically for rent reductions.

Attendance at the tenant meetings averaged 48 with a high of 100 at North York Civic Centre on January 26, 1999. In general, the tenant meetings were well received likely because an automatic benefit was being realized by tenants.

The two landlord meetings had a much higher attendance and averaged 275. In fact, the meeting held at North York Council Chambers attracted 350 and required many attendees to stand as all seats were taken. These two meetings generated the most unrest and heated discussion. Most of the landlords who did attend owned small buildings, where, as noted previously in this report, the provincially regulated formula using a 20% ratio of taxes to rental income, was a major issue. Many of the landlords had no idea that this provision of the Act was in place and were confused and angered over the whole notification process. It was made quite clear by landlords that should similar notices be sent this year, the 20% ratio must be revised to better reflect actual taxes to rental income.

Finance Department Resources

Although there was consultation with city staff, outside landlord and tenant consultants as well as mailing and printing houses, Finance Department staff undertook the lead. Since November 1998, staff members have spent a high proportion of time on this project taking away attention from dealing with appeals and other policy matters. The implementation of CVA in 1998 and the numerous subsequent provincially legislated changes has impacted on Finance policy staff whose primary functions include support of the Assessment and Tax Policy Task Force, new tax policy development with respect to CVA changes, frozen assessment listing maintenance, condominium policies, input to interim and final billing procedures as well as additional support to senior management and Council. Despite the external hotlines being set up, there was considerable spillover to the Finance staff which impacted on their ability to carry out other duties.

For 1998, the level of resourcing and staffing was underestimated given the level of support to be provided and demand. Should Council wish that the notification process to all tenants and landlords continue for 1999, and provide the same 1998 level of support from within city resources, it is estimated that an additional $500,000 would need to be included. This estimate would provide for an additional ten staff to develop the notices, respond to inquiries, ensure information and communication requirements are met and provide councillors with necessary information, both hard copy and electronically, with respect to their ward. Space for additional staff, supplies and equipment are not included in this estimate.

Conclusion:

The Tenant Protection Act (which is Provincial legislation) requires municipalities to notify landlords and tenants in multi-residential properties of automatic rent reductions where taxes decrease more than 2.49%. Council's expanded program increased the notification program from 5,552 to 497,479. Under the phase-in and capping provisions in place in Toronto, tax changes are considerably reduced which results in much smaller rent changes than would otherwise be realized under full CVA. The resources for this project are considerable and while the mandatory notification to multi-residential properties must continue annually, it is recommended that the full notification to all tenants not be undertaken again until the next reassessment (2001).

Tenant/landlord issues are directly related to housing, and given that a significant proportion of inquiries resulting from the mailings related to the broader scope of tenant/landlord and housing issues - and not specifically tax and rent reductions - expertise is more readily available from sources such as the Ministry of Housing, Ontario Housing Rental Tribunal and the Federation of Metro Tenants Association. The Province should be requested to undertake the notification program itself as the Tenant Protection Act is a provincial responsibility. City Finance staff would provide the necessary tax data for the notices.

However, if the City proceeds with the notification for 1999, certain issues arise. Since 1999 is the second year of a three year capping program of taxes in the City, it is estimated the proportion of tax decreases to be provided to those properties experiencing a decrease under CVA will increase since the cap on tax increases for 1999 will double to 4.8% This may allow for larger tax decreases. It is therefore estimated that the total number of properties eligible for the mandatory decrease in the multi-residential class will double with the result that the number eligible for automatic rent reductions will also double. It is estimated a budget of $21,800 will be spent to notify tenants/landlords in the multi-residential class for 1999.

Should a complete notification process to tenants and landlords be required again by City staff for 1999, an increase in budgetary requirements will be required. Since 1998 was the first year the notification process was required, resources were underestimated and in addition to the 1998 budget of $453,400, it is estimated that an additional $500,000 is required to provide the same level of support as in 1998 including a communications and inquiry line to respond to the inquiries generated from the mailing.

The Province must review the 20% ratio of taxes to rental income used in its formula for rent reduction, particularly as it relates to those rental properties with less than seven units prior to notices being mailed in 1999.

Contact Names:

Paul Wealleans, 397- 4208

Lynne Ashton, 397-4203

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