COMMITTEE OF THE WHOLE REPORT: 2022 TAX RATE OPTIONS

2022 TAX RATE OPTIONS

RECOMMENDATION:

THAT Council determines the municipal tax rates to be implemented for 2022 and direct that a bylaw be prepared to implement the tax rates accordingly.

CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:

I concur with the recommendation.

PURPOSE OF REPORT:

To consider various tax rate options for 2022 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 3, 2022 meeting with adoption on May 10, 2022. This schedule will allow sufficient staff time to prepare tax notices for mailing before the end of May.

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 tax rate 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 increases for average property values in 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 British Columbia.

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 Comparative analysis shows that View Royal’s business class ratio at 3.69 is slightly above the five-year median of 3.40 for all municipalities in the region. View Royal’s 2021 business class ratio ranked near the middle when compared to other Capital Regional District (CRD) municipalities.
• Schedule 2 Comparative Tax Ratios-Recreation Class When compared with other CRD municipalities, View Royal’s 2021 recreation class multiple ranked second highest (no change from 2020) and at 5.10 is significantly higher than the regional five-year median of 2.46. This reflects Council’s historical direction for this assessment class.
• Schedule 3 Comparative Municipal Taxes per Capita In 2021, 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 2022:

• Schedule 4 2022 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 2022 assessment roll results in a 3.5% shift in tax burden to the residential property class, given no change to the tax ratios (see Schedule 4). While most property class total assessments increased, the residential class increased significantly more than any other property class. Council may consider using the tax ratios between assessment classes (also called the “multiples”) to re-balance the tax burden. 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.

Recent information presented to Council indicates that the 2022-2026 Financial Plan should be amended to include increased policing costs, a portion of which is funded by taxation. Council may wish to make other changes to the financial plan before it is approved, based on input from the public or other new information. This report incorporates financial plan discussions to date and presents four scenarios (Scenarios A-D) that return a 4.7% tax increase and two scenarios (Scenarios E and F) that return a 5.5% tax increase.

Scenario A (4.7%) Change all tax rates by same percentage; no change to tax ratios from prior year. Scenario B (4.7%) Change each property class’s total contribution by same percentage. Scenario C (4.7%) Decrease Class 5 and Class 6 tax ratios to 3.1 and 3.3, respectively. Scenario D (4.7%) Increase Class 8 multiple only; all other multiples kept the same as in the prior year. Scenario E (5.5%) Change all tax rates by same percentage; no change to tax ratios from prior year. Scenario F (5.5%) Increase Class 8 multiple only; all other multiples kept the same as in the 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 2022. ii. Tax rates, class contributions and ratios are calculated exclusive of non-market change assessments for the current year.

Schedule 4 Scenario A (4.7%) Change all tax rates by same percentage; 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 demonstrates how the change in 2022 property assessments shifts 3.5% of the tax burden from non-residential property classes to the residential property class. For the purposes of this discussion, tax burden is defined as the proportion of total tax revenue provided by each property class.

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 2021 and includes the 2022 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 122 folios, of which 47 are exempt (CRD-owned etc.). Of the 75 Business Class properties with taxable assessments, 39 or 52% have assessed values under $800,000, while the remaining 36 properties range between $800,000 and $78 million. The skewed distribution of assessed values results in a somewhat misleading average assessed value over all Business Class properties ($2.6 million in 2022).

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 Sample property comparatives 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 4% 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 4%.

For 2022, the residential class representative property assessment value increased by nearly 24%, (from $753,400 to $930,800) while the business class representative property assessment value increased by nearly 6%.

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.

BUDGET IMPLICATIONS:

The tax rate scenarios presented are based on raising enough tax revenue to meet the financial plan’s 2022 target. At its budget workshops in February, Council considered the financial plan based on an estimated 4.7% overall tax increase. If recommended changes to the financial plan are accepted, a tax increase of 5.5% would be required. 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.

RECOMMENDATION:

THAT Council determines the municipal tax rates to be implemented for 2022 and direct that a bylaw be prepared to implement the tax rates accordingly.

SUBMITTED BY: D. Christenson, Director of Finance

REVIEWED BY: K. Anema, Chief Administrative Officer

Attachments: Schedule 1 Comparative Tax Ratios-Business Class Schedule 2 Comparative Tax Ratios-Recreation Class Schedule 3 Comparative Municipal Taxes per Capita Schedule 4 2022 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