Government Management Committee. P:\2011\InternalServices\RE\Gm11017re (AFS #13694)

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1 STAFF REPORT ACTION REQUIRED Municipal Capital Facility Agreements (Multiple Properties) Date: April 12, 2011 To: From: Government Management Committee Chief Corporate Officer Wards: 2, 5, 8, 12, 15, 18, 20, 22, 23, 26, 27, 30, 31, 33, 36, 37, 38, 42 Reference Number: P:\2011\InternalServices\RE\Gm11017re (AFS #13694) SUMMARY This report seeks Council authority to adopt the necessary by-laws to designate space at various locations leased by the City from 3 rd party landlords as municipal capital facilities and to provide a property tax exemption for municipal and education purposes. Providing a tax exemption for the leased space will result in a net financial savings to the City of approximately $1,030,000 per year. RECOMMENDATIONS The Chief Corporate Officer recommends that: 1. Council pass a by-law pursuant to section 252 of the City of Toronto Act, 2006, providing authority to: a. enter into a municipal capital facility agreement with the owners of the properties (Appendix A), with respect to approximately 365,589 square feet of rentable area leased by the City of Toronto; and Municipal Capital Facility Agreements (Multiple Properties) 1

2 b. exempt the leased space from taxation for municipal and education purposes. Tax exemption is to be effective from the latter of the following dates: the commencement date of the lease; the date the municipal capital facility agreement is signed; or the date the tax exemption by-law is enacted. 2. Council direct the City Clerk to give written notice of the by-law to the Minister of Education, the Municipal Property Assessment Corporation, the Toronto District School Board, the Toronto Catholic District School Board, the Conseil Scolaire de District du Centre-Sud-Ouest, and the Conseil Scolaire de District du Catholique Centre-Sud. 3. Authority be granted for the introduction of the necessary bills to give effect thereto. 4. The appropriate City Officials be authorized and directed to take the necessary action to give effect thereto. FINANCIAL IMPACT The annual property taxes on the space leased by the City at the 22 sites discussed in this report is estimated at approximately $1,851,000, comprised of a municipal portion of $814,036 and a provincial education portion of $1,037,510, based on 2010 Current Value Assessment (CVA) and 2010 tax rates, including all capping adjustments. Making the leased space exempt would result in net savings to the City of approximately $1,037,510 representing the provincial education share of taxes that would no longer be payable once the exemption takes effect (see Appendix "A" for detailed breakdown). There would be no net impact on the municipal portion of taxes from the exemption as the decrease in municipal tax revenue would be offset by a corresponding reduction in the annual budgetary requirement for each of the divisions. The Deputy City Manager and Chief Financial Officer has reviewed this report and agrees with the financial impact information. ISSUE BACKGROUND Real Estate Services has undertaken a full review of space leased by the City of Toronto to identify potential savings through the tax exemption of space occupied by City divisions. This report deals with space that will continue to be taxable should the premises not be designated as municipal capital facilities. Municipal Capital Facility Agreements (Multiple Properties) 2

3 COMMENTS Properties owned and occupied by a municipality or local board are exempt from taxation pursuant to section 3 of the Assessment Act. However, where a municipality or local board leases property that would normally be subject to taxation, this exemption does not apply. Given that the space in question is leased by the City, as opposed to owned, the leased premises used by the City are subject to taxation at commercial rates. The property tax exemption on the space that is leased by the City will not apply unless City Council agrees to provide a tax exemption, by way of a municipal capital facility agreement under section 252 of the City of Toronto Act, Currently the City leases approximately 222 properties from 3 rd parties, this report will deal with all remaining properties where the City is a tenant and that should be given a municipal capital facility agreement. When the City leases properties from a 3 rd party, usually the authority for a municipal capital facility exemption is contained in the staff report that requests approval to enter into the lease agreement with a 3 rd party. The properties referenced in this report are properties that did not seek such authority due to the agreements predating the establishment of the Real Estate Tax Unit. It is now standard practice for the City to seek an exemption in conjunction with the authority to lease. LEGISLATION REGARDING MUNICIPAL CAPITAL FACILITIES Section 252 of the City of Toronto Act, 2006 allows the City to enter into agreements with any person for the provision of municipal capital facilities, and allows City Council to exempt from taxation for municipal and school purposes, land or a portion of land, on which municipal capital facilities are or will be located. Ontario Regulation 598/06 prescribes facilities used for the general administration of the City as eligible municipal capital facilities for the purpose of section 252. Under Section 252 of the City of Toronto Act, the legislation requires: (a) (b) that the property owner and the City enter into an agreement for the provision of a municipal capital facility for the space being leased; and that a by-law be passed by Council permitting the City to enter into the agreement, and to exempt the property to which the municipal capital facility agreement applies from taxation for municipal and school purposes. Municipal Capital Facility Agreements (Multiple Properties) 3

4 Upon the passing of this by-law, the City Clerk must give written notice of the by-law to the Minister of Education. For the tax exemption, the City Clerk must also provide a written notice of the contents of the by-law to the Municipal Property Assessment Corporation and the Secretary of any affected school board(s). CONTACT Joe Casali Phone: (416) Director, Real Estate Services Fax: (416) jcasali@toronto.ca SIGNATURE Bruce Bowes, P.Eng. Chief Corporate Officer ATTACHMENTS Appendix A - Ownership of Subject Properties Appendix B - Financial Savings due to Property Tax Exemption (2010 Tax Year) Municipal Capital Facility Agreements (Multiple Properties) 4

5 Appendix A Ownership of Subject Properties Roll # Address Owner Division Kingston Rd Ontario Limited TESS Gerrard St E Runnymede Development Corp Children's Services Kennedy Rd 1225 Kennedy Holdings TESS Consilium Pl Menkes Consilium Holdings TESS Kingston Road Cliffcrest Plaza Limited TESS McCowan Rd Dejardins Financial Children's Services Finch Ave E Ontario Inc TESS Dufferin St Dufferin Mall Holdings Inc TESS King St W Oxford Development Group Inc TESS University Ave Manulife Financial MULTIPLE Danforth Ave NW Property Corp Health Eglinton Ave E 150 EAE Properties Inc TESS Finch Ave W Ontario Ltd TESS Lawrence Ave W Riocan Holdings Inc. TESS Sheppard Ave E Sheppard Ave Inc TESS Don Mills Rd Independent Order of Forresters TESS Sheppard Ave E Healthcare Property Holdings Inc WES Rogers Rd Medi Power Canada TESS Islington Ave Islington Profession Centre Holdings Children's Services Attwell Ave Nova Scotia Ltd TESS Rexdale Blvd Reiter International WES Municipal Capital Facility Agreements (Multiple Properties) 5

6 - Appendix B - Financial Savings due to Property Tax Exemption (2010 Tax Year) Roll# Address Municipal Taxes (1) Education Taxes (2) Total Budget Requirement for Property Taxes (1+2) Kingston Rd $26, $14, $41, Gerrard St E $10, $8, $18, Kennedy Rd $55, $54, $109, Consilium Pl $170, $186, $357, Kingston Road $28, $24, $53, McCowan Rd $31, $17, $48, Finch Ave E Gross Lease* Gross Lease* Gross Lease* Dufferin St Gross Lease* Gross Lease* Gross Lease* King St W $46, $47, $93, University Ave $34, $29, $63, Danforth Ave $80, $52, $133, Eglinton Ave E $96, $93, $190, Finch Ave W $7, $102, $109, Lawrence Ave W $20, $210, $230, Sheppard Ave E $13, $11, $25, Don Mills Rd $25, $36, $62, Sheppard Ave E $5, $5, $10, Rogers Rd $95, $82, $178, Islington Ave $29, $23, $53, Attwell Ave $34, $35, $70, Rexdale Blvd No Taxes Charged No Taxes Charged No Taxes Charged Gross Savings due to exemption(sum of column "1+2"): $ 1,851, Less Reduction in Municipal Tax Revenues (sum of column "1"): $ 814, Total Annual Net Savings (sum of column 2): $ 1,037, *Agreements where the City has a gross lease, the taxes comprise part of the total rental payment. The rental amount will be decreased to reflect the exemption. **The City has not been charged taxes by the landlord up to this date for the property it occupies at 321 Rexdale Blvd. Municipal Capital Facility Agreements (Multiple Properties) 6