2023 TAX RATE OPTIONS - STAFF REPORT

2023 TAX RATE OPTIONS

RECOMMENDATION:

THAT the Committee recommend to Council the 2023 municipal tax rates and that a bylaw be prepared to implement the tax rates accordingly.

PURPOSE:

To consider various tax rate options for 2023 that will achieve the Financial Plan’s revenue target for municipal taxation.

TIME CRITICAL:

Legislation requires the municipality to adopt a tax rates bylaw after adoption of the financial plan but before May 15 each year. After receiving direction from Council, staff will prepare the tax rates bylaw for consideration at the May 2, 2023, meeting with adoption on May 9, 2023. This schedule will allow sufficient staff time to prepare tax notices for mailing before the end of May.

EXECUTIVE SUMMARY:

The 2023-2027 Financial Plan, as reviewed, debated, and amended by Council over a series of discussions starting in November 2022, sets the 2023 property tax revenue target at $11.1 million, an increase of 11% over 2022. The estimated impact to property owners, excluding the effect of non-market changes in assessments, was an increase of 9.97%, based on then-available assessment information.

The most recent assessment values from BC Assessment indicate that both residential and business class assessments have increased by nearly the same overall percentage (12%-13%), with a minimal shift in the tax burden to the residential class, assuming no change in tax class ratios. The Committee has the option to review several tax rate scenarios and select the one that best aligns with financial plan objectives.

Once Council has determined the 2023 tax rates, staff will prepare a bylaw for Council’s consideration in accordance with provincial legislation, to be adopted prior to May 15, 2023.

BACKGROUND:

The Community Charter requires Council to consider the tax rates proposed for each property class in conjunction with the objectives set out in its financial plan. Last year’s financial plan bylaw included the following objectives and policies:

Objectives

1. To ensure property value taxes remain affordable and reasonable for services provided.
2. To maintain consistent tax burden for all property classes.

Policies

1. Regularly review the affordability of property value taxes for each property class relative to other classes.
2. Regularly review and compare the Town of View Royal’s distributions of tax burden relative to other municipalities in the region and historically.

Council’s objectives may shift from time to time to adjust to current pressures and trends in assessment values.

The following schedules (attached) compare historical key tax ratios and taxes per capita in Capital Regional District municipalities and include indicators of the median and provincial comparatives where applicable:

• Schedule 1 Comparative Tax Ratios-Business Class 6 Comparative analysis shows that View Royal’s business class ratio at 4.30 is 0.77 above the five year median of 3.53 for all municipalities in the region. View Royal’s 2022 business class ratio ranked just above the middle when compared to other Capital Regional District (CRD) municipalities.
• Schedule 2 Comparative Tax Ratios-Recreation Class 8 When compared with other CRD municipalities, View Royal’s 2022 recreation class multiple ranked second highest (no change from 2021) and at 6.00 is significantly higher than the regional five-year median of 2.45. This reflects Council’s historical direction for this assessment class.
• Schedule 3 Comparative Municipal Taxes per Capita In 2022, View Royal’s municipal taxes per capita was the fourth lowest of all CRD municipalities and has been relatively consistent over the last four years. This analysis looks only at property taxes and excludes fees and charges for other municipal services such as garbage collection, water, and sewer.

DISCUSSION:

The following schedules are attached to this report to assist Council in determining tax rates for 2023:

• Schedule 4 2023 Municipal Tax Rates Analysis Scenario A
• Schedule 5 Summary of impact on prior year $100,000 property value, adjusted for current year market change
• Schedule 6 Sample property comparatives

The following discussion reflects assessment values provided by BC Assessment in its Revised Roll published the last week of March 2023. Additionally, the analysis uses 2022 comparative assessment values that include supplementary assessment changes received to date. These updated values result in somewhat different estimates than originally calculated earlier in the year. For example, the published financial plan estimated that the average residential property would see an increase of $187, while the same calculation based on the most recent assessment rolls indicates the increase is closer to $200.

The 2023 assessment roll indicates a 0.06% shift in tax burden to the residential property class, given no change to the tax ratios (see Schedule 4). Residential (Class 1) assessments, comprising 92% of total assessments, increased by 13%, and Business (Class 6) assessments increased 12% overall.

Council may consider using the tax ratios between assessment classes (also called the “multiples”) to rebalance the tax burden and achieve financial plan objectives. When a property class multiple increases in relation to the residential class, properties in that class will experience higher taxes than they otherwise would, and the residential class properties will experience lower taxes. However, the benefit to an individual property in the residential class is proportionately smaller than the negative effect to properties in the class with the increased multiple, because of the disproportion of the residential class to that of other classes. The analysis provided with this report attempts to demonstrate this effect.

This report incorporates financial plan discussions to date and presents four scenarios (Scenarios A-D) that return the total 2023 tax revenue of $11,114,643 stated in the financial plan:

• Scenario A: Change all tax rates by same percentage; no change to tax ratios from prior year.
• Scenario B: Each property class’s contribution (total dollar amount) increases by the same percentage.
• Scenario C: Decrease Class 5 and Class 6 tax ratios to 3.7 and 4.0, respectively; no change to other tax ratios from prior year.
• Scenario D: Increase Class 8 ratio only; no change to other tax ratios from prior year.

The following table summarizes the changes in key elements for each scenario:

* Notes: i. Class 2-Utilities is excluded from this analysis as legislation allows the rate to be set at a constant $40 per $1000 assessed value, which prior View Royal tax bylaws have maintained and is assumed for 2023. ii. Tax rates, class contributions and ratios are calculated exclusive of non-market change assessments for the current year, unless otherwise indicated.

Schedule 4 Scenario A Change all tax rates by same percentage (-1.5%); no change to tax ratios from prior year demonstrates the base scenario using the same model and calculations on which all other scenarios are developed and analyzed. This scenario assumes no change to the tax ratios and allows the change in 2023 property assessments to shift the tax burden between assessment classes. For the purposes of this discussion, tax burden is defined as the proportion of total tax revenue provided by each property class. In 2023, assessment changes result the following shift of the tax burden:

• Residential (Class 1): 0.06%
• Light industry (Class 5): -0.03%
• Business (Class 6): -0.22%
• Recreation/non-profit (Class 8): 0.19%

Schedule 5 Summary of impact on prior year $100,000 property value, adjusted for current year market change compares the results of each scenario on a property valued at $100,000 in 2022 and includes the 2023 market percentage change for each property class. This analysis demonstrates how changing tax ratios affects properties in separate property classes differently, because of the shift in assessments. It also shows that reducing a ratio in one property class by default increases the taxes for all other property classes to achieve the revenue target required by the financial plan.

Schedule 6 Sample property comparatives lists several significant properties and particular properties of interest to Council and estimates the effect of each scenario on each property. This analysis includes the specific change in assessed value for each property, for context. Note that while Schedule 6 provides estimates for subsets of assessments within the residential class (single family, strata), legislation allows only one rate for the residential property class.

Care should be taken when making decisions that target a specific property class if that class has a very small number of properties. For example, the Business (Class 6) assessment class has 123 folios, of which 46 are exempt (government-owned etc.). Of the 77 Business Class properties with taxable assessments, 37 or 48% have assessed values under $1 million, while the remaining 40 properties range between $1 million and $82 million. The skewed distribution of assessed values results in a somewhat misleading average assessed value of $2.8 million over all Business Class properties ($2.6 million in 2022) referenced as the Class Representative.

Both Light Industry (Class 5) and Recreation/Non profit (Class 8) assessment classes demonstrate extreme examples of the statistical problem described above, as they each comprise two (2) taxable properties. For this reason, the two properties in each of these classes are listed on Schedule 6 with each scenario’s estimated effect. The impact of each scenario on the individual property owner is best described by comparing the change in their property assessment value to that of the class representative (or average) property. For example, if a scenario predicts a 10% tax increase for the class representative or average property, it means that properties whose change in assessed value is greater than the change in the representative property’s assessed value will experience a tax increase greater than 10%.

For 2023, the residential class representative property assessment value increased by over 12%, (from $930,200 to $1,046,300) while the business class representative property assessment value increased by nearly 11%.

Predicted municipal tax increase or decrease for the representative property in the residential and business classes are as follows:

Staff will review each of these scenarios in detail with Council and be available to answer questions.

The amount a taxpayer will pay is dependent on multiple factors such as the individual property’s assessment in relation to others within the class, shifts in assessments between classes and the effect of non-market changes on each class. BC Assessment’s website at https://info.bcassessment.ca/propertytax helps taxpayers understand how a change in assessments impacts their property taxes. Information about the financial plan, property taxes, the homeowner grant and other pertinent information will be included on an insert mailed with each tax notice.

SUSTAINABILITY/CLIMATE CHANGE IMPACTS:

Council considers implications for financial sustainability throughout the development of the five-year financial plan. This includes consideration of structural balance – matching the frequency and reliability of revenue with the expense categories. Additionally, the financial plan includes using reserves and debt to smooth the financial impact to taxpayers by spreading the cost of certain expenditures (like capital investments) over time. These measures directly impact tax rates.

The recommendation and alternatives suggested by this report have no significant direct impact to climate change in View Royal.

FINANCIAL IMPLICATIONS:

The tax rate scenarios presented are based on raising enough tax revenue to meet the financial plan’s 2023 target. At its budget workshops in February, Council considered the financial plan based on an estimated 9.97% overall tax increase (excluding non-market change assessments). As described in this report, the overall tax increase plays out differently to each property assessment class, depending on the magnitude and direction (increase or decrease) of the change in assessments compared to the prior year as well as Council’s objectives for distributing the tax burden between classes.

ALTERNATIVES:

This report suggests several options for 2023 tax rates and staff will assist in estimating the impact of further alternatives as required.

CONCLUSION:

The Committee can achieve its objectives regarding tax rates by recommending adjustments to the tax class multiples for 2023. This report provides several options and describes implications of each for each assessment class and for sample properties. Tax rate options should be considered in the context of the tax rate schemes throughout the Capital Regional District.

The options provided are based on the proposed 2023-2027 Financial Plan that estimated a 9.97% total tax increase, excluding the impact of non-market changes to assessments. This report provides updated estimates based on the most recent assessment information from BC Assessment.

Provincial legislation requires Council to adopt a tax rate bylaw before May 15 each year. The following schedule will satisfy this requirement:

ATTACHMENTS:

Schedule 1 Comparative Tax Ratios-Business Class 6
Schedule 2 Comparative Tax Ratios-Recreation Class 8
Schedule 3 Comparative Municipal Taxes per Capita
Schedule 4 2023 Municipal Tax Rates Analysis Scenario A
Schedule 5 Summary of impact on prior year $100,000 property value, adjusted for current year market change
Schedule 6 Sample property comparatives