Potential Economic Impacts of Proposed Business Parking Levy in the Greater Toronto and Hamilton Area

Transcription

1 Potential Economic Impacts of Proposed Business Parking Levy in the Greater Toronto and Hamilton Area August 19, 2013

2 Business Parking Levy in the Greater Toronto and Hamilton Area Prepared for: Real Property Association of Canada Building Owners and Managers Association Toronto International Council of Shopping Centres Financial District BIA NAIOP Greater Toronto Chapter The Building Industry and Land Development Association Prepared by: 33 Yonge Street Toronto Ontario M5E 1G4 Phone: (416) Fax: (416) altusgroup.com August 19, 2013

3 EXECUTIVE SUMMARY On May 27, 2013, Metrolinx published its investment strategy for financing its planned transit infrastructure investment in the Greater Toronto and Hamilton Area (GTHA). Metrolinx, an agency of the Government of Ontario, was created to improve the coordination and integration of all modes of transportation in the Greater Toronto and Hamilton Area. This report supports the Government of Ontario s efforts to increase investment in public transit, which will benefit the GTHA s economy by reducing traffic congestion. There are a number of financing tools that Metrolinx can rely on to provide funding for the planned public transit investment. The best financing tools should be fair and the least distortive to the economy. One of the preferred investment tool proposals is a new Business Parking Levy, which is to be applied on all off street, non residential parking spaces. The levy will be based on the current value assessment of parking spaces across the GTHA. The proposed structure of the levy has been revised from Metrolinx s previous proposal. However, a detailed analysis of this proposed new levy finds that the revised levy structure will be a poor choice for financing public transit investment: The proposed parking levy will fail to satisfy the five selection criteria set out by Metrolinx: The amount of revenue to be raised by the levy will be neither predictable nor durable and the long term performance of the levy as a financing tool for public transit investment is unproven; The administrative costs will be substantial and the process impractical to manually identify all business parking spaces in the region, and then, assess values of the parking portion of the properties; The actual effects of the levy on drivers behaviour are likely to be negligible as the cost of the levy is most likely to Business Parking Levy in the Greater Toronto and Hamilton Area Page i

4 be absorbed by property owners and businesses, especially small businesses; The proposed parking space levy will have a negative impact on businesses competitiveness and economic development in the GTHA, reducing economic competitiveness of the region; and The levy will have little benefit to social fairness and equality. Moreover, the proposed Business Parking Levy fails to satisfy wellaccepted general principles of good taxation. It will be complex, unfair, and have negative impacts on businesses. In addition, it will cause a double taxation problem; Property owners and businesses in the City of Toronto will be affected the most over 60% of the expected revenue from the levy will be generated in the city; The retail and office sectors will bear most of the increased cost from the proposed levy; The potential annual revenue is likely to be less than the $350 million estimated by Metrolinx if institutional properties are exempt; and Experiences from the Greater Vancouver s parking levy illustrates that the levy is administratively difficult to implement, causes a range of problems and distortions. Overall, this report concludes that a parking space levy is a poor financing tool for planned public transit investment in the GTHA. However, it does, in principle, support greater investment in public transit. Business Parking Levy in the Greater Toronto and Hamilton Area Page ii

5 TABLE OF CONTENTS Page EXECUTIVE SUMMARY... i 1 INTRODUCTION PRINCIPLES OF GOOD TAXATION Simple and Understandable Fairness Impacts on Business Double Taxation METROLINX S SELECTION CRITERIA FOR PREFERRED INVESTMENT TOOLS Strong, Predictable and Durable Revenues Reasonable Cost and Ease of Implementation Price Signals to Encourage Efficient Travel Choices Promotes Economic Competitiveness Promotes Social Fairness and Equality ISSUES RELATED TO ZONING BY LAW POTENTIAL REVENUE LESSONS LEARNED FROM OTHER JURISDICTIONS Introduction of the Parking Levy Structure of the Tax Lessons Learned CONCLUSION Business Parking Levy in the Greater Toronto and Hamilton Area Page iii

6 1 INTRODUCTION On May 27, 2013, Metrolinx published its investment strategy for financing its planned transit infrastructure investment in the Greater Toronto and Hamilton Area (GTHA). Metrolinx, an agency of the Government of Ontario, was created to improve the coordination and integration of all modes of transportation in the Greater Toronto and Hamilton Area. 1 The list of funding tools aims to help Metrolinx finance proposed investments outlined in The Big Move 2 and the next wave of public transit projects. 3 This report supports the Government of Ontario s efforts to increase investment in public transit, which will benefit the GTHA s economy by reducing traffic congestion. There are a number of financing tools that Metrolinx can rely on to provide funding for the planned public transit investment. The best financing tools should be fair and the least distortive to the economy. One of the preferred potential investment tools is a Business Parking Levy, which is to be applied on all off street, non residential parking spaces. The levy is to be based on the current value assessment of the parking spaces across the GTHA. It acts as a tax on non residential property owners, businesses or drivers. The amount of the levy will vary by region and by property type, with parking in higher value areas charged a higher rate 4. As with any tax, the proposed parking levy will have substantial financial and business impacts on the local economy, and potentially could create obstacles to economic growth in GTHA. This report evaluates the proposed parking space levy based on: An assessment of the levy on the five selection criteria set out by Metrolinx, especially on the feasibility or complexity to implementing the proposed levy; 1 Metrolinx s website 2 Metrolinx, The Big Move: Transforming Transportation in the Greater Toronto and Hamilton Area, Metrolinx, Metrolinx Releases Short List of Proposed Investment Tools for Consultation, News Release, April 2 nd, Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page 66. Business Parking Levy in the Greater Toronto and Hamilton Area Page 1

7 An assessment of the levy on several widely accepted principles of good taxation; An analysis of the potential magnitude and distribution of revenue that will be generated by the levy by region and by property type; An investigation into the effectiveness of the levy structure to achieve one of Metrolinx goals to reduce the number of parking spots and increase density through an analysis of parking requirement under municipal zoning by laws across the region and typical lease covenants and restrictions at shopping centres; and Review of lessons learned from other jurisdictions, where a parking levy has been imposed. The levy will be charged directly to non residential property owners: The levy will be collected from property owners either by municipalities then remitted to Metrolinx or directly by Metrolinx, likely on an annual basis; and Drivers will not be directly charged in a clear and transparent manner: For users of paid parking spaces, they will pay for the additional cost through higher unit parking charges (to the extent that the market will bear) rather than as a transparent tax; and Motorists using free parking spaces provided at workplaces, institutions (such as schools or hospitals) or shopping centres are unlikely to bear any of the cost of the new tax. It is possible motorists visiting shopping centres will experience some of the tax burden through higher retail prices, but even to the extent that may occur, this would be borne by both drivers and non drivers alike. To companies that provide free parking to their employees, this tax will be borne by the company and act as a further tax on employment. Business Parking Levy in the Greater Toronto and Hamilton Area Page 2

8 2 PRINCIPLES OF GOOD TAXATION This section provides an assessment of the proposed parking space levy (or tax ) against several widely accepted principles upon which to evaluate tax measures. 2.1 Simple and Understandable As a general principal of good taxation, taxpayers should be able to understand the tax structure and the policy rationale behind it. While the proposed Business Parking Levy appears simple and understandable when proposed in generality, it becomes a very complicated tax upon implementation. The structure of the parking levy could be seen as simple. It entails a levy of a certain amount per day on all non residential off street parking spaces in the GTHA. Moreover, the policy rationale behind the parking space levy, to finance public transit investment in the GTHA through a dedicated revenue source, is generally understandable. However, as experience in other jurisdictions has shown, if on the surface a levy seems simple and understandable, once implemented, things quickly become complicated and confusing: In Vancouver, there were insurmountable difficulties estimating the annual levy on a property by property basis with continued uncertainties over such issues as the role of walkways, driveways truck bay turn arounds, etc., in the calculations; and A growing number of exemptions over time increased the complexity of the levy s structure. 2.2 Fairness The purpose of the parking levy is to raise revenue to fund investment in future public transit infrastructure. In general, economic principles state that the financing of the public transit investment should be closely aligned with the beneficiaries. It is only fair to ask those who benefit to pay for the public transit investment. Business Parking Levy in the Greater Toronto and Hamilton Area Page 3

9 In general there are two groups that benefit from public transit: Public Transit Users: They benefit from the public transit investment directly; and Everyone in the Community: New transit not only provides a direct benefit to commuters, but also generates positive spill over effects on the whole community through: Absorbing traffic from other parts of the transportation system and reducing congestion and traffic accidents; Reducing automobile emissions and improving air quality with public health benefits across the community; Improving workplace productivity, encouraging sectoral clusters and other economic development effects; Facilitating economic growth, creating jobs and attracting new business investment; and Increasing access to community facilities such as recreation centres and amenities. The investment in public transit should be financed by public transit users (through user fees) and everyone in the community (through general taxation applied to everyone in the region). To only tax the business community, the proposed Business Parking Levy fails to have a direct tie in to this important finance principle. 2.3 Impacts on Business Good taxation should not create a large competitive disadvantage either for particular business sectors or in terms of economic development potential across the region. The proposed Business Parking Levy will increase significantly the operating cost for non residential property owners and tenants in the GTHA. If the proposed parking levy is to generate $350 million per year as expected by Metrolinx, it means that businesses in the GTHA would face substantially increased operating costs each year. This will result in less business Business Parking Levy in the Greater Toronto and Hamilton Area Page 4

10 investment in the region as the new parking levy will reduce the financial return to business, especially small business. 2.4 Double Taxation The proposed Business Parking Levy will cause a double taxation problem. The parking levy is similar to a general property tax both apply directly to real estate properties and based on assessment value. When added to the existing property tax, non residential property owners effectively pay twice for owning a property. Governments should avoid tax systems that lead to double taxation nonresidential property owners already pay for owning parking spots through property taxes since the number of parking spots affects property values. Under the proposed parking levy, those non residential property owners have to pay another parallel tax for owning parking spots, effectively paying twice for the same item. This violates fairness principles and is administratively burdensome. This section has assessed the proposed Business Parking Levy against several widely accepted principles upon which to evaluate tax measures. It concludes that the levy will fail to satisfy those principles. It will be complex, unfair, and have negative impact on businesses. In addition, it will cause a double taxation problem. 3 METROLINX S SELECTION CRITERIA FOR PREFERRED INVESTMENT TOOLS Metrolinx has tested the 11 shortlisted investment tools in its previous report against the five following selection criteria to help it make a final decision on investment tools 5 : Strong, predictable and durable revenues Reasonable cost and ease of implementation 5 Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page 59. Business Parking Levy in the Greater Toronto and Hamilton Area Page 5

11 Price signals to encourage efficient travel choices Promotes economic competitiveness Promotes social fairness and equality This section assesses the proposed Business Parking Levy against the aforementioned criteria to determine whether the proposed levy is an appropriate tool for financing public transit investment in the GTHA. 3.1 Strong, Predictable and Durable Revenues From the government s perspective, expected revenue from the levy should be predictable and as stable as possible so that capital investment relying on the revenue can be planned with certainty as investment in public transit is typically long term in nature. In general, a parking space levy is a relatively stable source of revenue as non residential property owners are unlikely to significantly reduce to any noticeable degree the number of parking spaces due in part to a combination of factors such as the typical long term lease restrictions at shopping centres, to market demand factors and zoning bylaws. However, Metrolinx expects that over time, businesses could reduce the amount of parking they provide through redevelopment, sharing parking with new developments or repurposing the spaces for more productive uses. 6 While such anticipated declines are unlikely, for the factors suggested above, the structure of the tax seems self defeating if one of its aims is to reduce its own tax base. Moreover, regardless of any reductions that may occur, there will be additional parking spots from new commercial developments each year, thus the net effect is unclear. Thus, the amount of revenue raised by the levy is not predictable or durable. In addition, using a parking levy to finance public transit investment is a relatively new and untested tax, compared to other financing tools. The longterm performance of the levy as a financing tool for public transit investment is unclear. Existing experience from Melbourne, Greater Vancouver and Nottingham has been relatively negative so far. 6 Ibid, page 67. Business Parking Levy in the Greater Toronto and Hamilton Area Page 6

12 3.2 Reasonable Cost and Ease of Implementation Metrolinx states that it will work with the Municipal Property Assessment Corporation (MPAC) to create a comprehensive off street parking space inventory for the GTHA and expects that the up front cost for creating the inventory will be moderate and the cost for monitoring, thereafter, will be small. However, Metrolinx is very likely understating the implementation case. Metrolinx acknowledges that the proposed levy structure will require MPAC to change the way it currently classifies properties in order to distinguish between parking and other uses, as well as the value of the parking portion of the properties. 7 The costs to manually identify all non residential off street parking spaces in the region, and then, assess values to the parking portion of the properties will be substantial and impractical. Moreover, there is no accepted practice in existence today in Ontario, or in any other jurisdiction, to provide a fair and accurate assessment of the market value for the parking portion of a non residential property, where the parking is provided to customers free of charge. The design of such a system from scratch will be very involved, and in all likelihood the outcome will be a mass patchwork of property tax appeals, which ultimately will neither serve Metrolinx requirements for revenue, nor provide any positive behaviour changes. There were substantial difficulties implementing the off street parking levy in Greater Vancouver, with a large number of appeals in the system as walkways, driveways, truck bay turn arounds and other areas were accounted as parking space. The proposed Business Parking Levy from Metrolinx is expected to face the same problem. The experience in Greater Vancouver demonstrates this despite the many alterations in design, the parking levy was met with considerable opposition. Of the 29,600 assessment notices delivered by TransLink 8 in December 2005, 7 Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page TransLink is Metro Vancouver s regional transportation authority. Business Parking Levy in the Greater Toronto and Hamilton Area Page 7

13 up to some 5,100 were appealed. 9 Various industry groups also spoke out against the levy. The provincial government eventually introduced legislation in November 2007 to completely eliminate the unworkable idea of a parking levy and replace it with the replacement tax. The replacement tax is a dedicated property tax, collected from both nonresidential (excluding institutional) and residential properties. Currently, the total amount of the tax is limited to $18 million per year, similar to the expected amount under the initial parking levy. 3.3 Price Signals to Encourage Efficient Travel Choices Metrolinx believes that a parking levy would encourage businesses to reduce their parking supply, which in term, will discourage driving and reduce traffic congestion. 10 However, the amount of parking spaces is mainly determined by market demand and municipal zoning by law. In general, property owners need to provide a certain number of parking spots in order to attract potential tenants and to comply with the by law. Unless people drive less and demand fewer parking spots, the number of parking spots will not decline significantly. Thus, the key for the proposed parking levy s success as a price signal to encourage efficient travel choices is its ability to affect drivers behaviour. Due to its design, the actual effects of the levy on drivers behaviour are likely to be negligible. The proposed Business Parking Levy is charged to property owners, instead to drivers individuals would not directly contribute to this tax as it would be applied to businesses only. 11 Thus, a parking levy on parking spaces, especially on free ones, is a hidden tax which is likely paid by the property owners and their tenants and then, ultimately, only part of the increased costs will be borne by the consumers, drivers and non drivers alike. Therefore, the parking levy s ability to send price signals to drivers is weak. 9 Transport Canada, TransLink Parking Tax Case Study, October Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page Ibid, page 68. However, drivers may directly pay for the levy in case where parking is currently charged. Business Parking Levy in the Greater Toronto and Hamilton Area Page 8

14 For example, shopping centres are unlikely directly to recover the fee from customers who drive: According to International Council of Shopping Centres (ICSC), most shopping centres have anchor leases that prohibit property owners from collecting parking fees. As a result, parking will continue to be free to motorists after the implementation of the parking space levy; In addition, the retail sector in the GTHA region is very competitive. This indicates that retailers, who will bear the cost of the new parking space levy, are unable to increase their prices to pass on the cost to consumers who drive to the shopping centre. Even if they do pass on some of the cost, consumers are unlikely to be aware that the increase is due to their choice of transportation; and Therefore, the levy on free parking spaces has no effects on those users driving behaviours. Similarly, companies, which provide free parking for their employees, could face higher rents and are unlikely to charge their employees (i.e. parking users) for the levy. In addition, the levy s effects on users of paid parking spaces may not be as substantial as policymakers have hoped. It is unlikely that the full levy would be passed onto end users even in the traffic zones where parking is already subject to a charge. 12 This is evidenced in Melbourne s experience: The cost of its parking levy was not passed on to long stay drivers to much extent because part of the cost was absorbed by business owners and some increase in short stay parking prices. Overall, the effects of the proposed Business Parking Levy on individual s travel choices would be minimal as the cost of the levy is most likely to be absorbed by property owners and businesses. 3.4 Promotes Economic Competitiveness Metrolinx believes the proposed parking levy can promote economic competitiveness because the levy is based on the current assessment values 12 AECOM and KPMG, Big Move Implementation Economics: Revenue Tools Profiles, March 2013, page 172. Business Parking Levy in the Greater Toronto and Hamilton Area Page 9

15 of parking space, which would reduce economic distortion in the parking market studies have found that even modest corrections to imperfect parking markets in urban areas can have significant benefits to businesses by increasing parking availability and reducing congestion. 13 However, although the levy might reduce economic distortion in parking, it will create a large competitive disadvantage for the business sector and have a negative impact on economic development potential across the region Pushing up the Operating Cost for Businesses The proposed Business Parking Levy will significantly increase the operating cost for business property owners and tenants in the GTHA. The annual amount of the parking space levy could sum up to millions for large shopping centres and major office complexes. Manufacturers will also incur a substantial annual cost increase under the proposed parking levy even after Metrolinx has revised the structure of the levy as to reduce the financial impact on industrial properties. Under the final proposal, industrial property owners/tenants will contribute about 12.3% of the total expected revenue, which is approximately $43.1 million. To put this amount into perspective, in the 2013 Provincial Budget, the Ontario Government includes the measure of extending the accelerated depreciation for manufacturing and processing equipment through 2016 to facilitate industrial development in the province. The measure potentially could save Ontario manufacturers $265 million over three years. 14 The expected increase in the annual operating cost of $43.1 million from the parking levy will be equivalent to almost half of all the tax savings proposed by Ontario Government over the next three years for all manufacturers in the province. Thus, the levy creates a large cost disadvantage to manufactures in the GTHA region. In addition, the levy will continue to be charged to the manufacturers in the region even after the tax saving measure expires in Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page Ontario Ministry of Finance, A Prosperous & Fair Ontario, 2013 Ontario Budget, May Business Parking Levy in the Greater Toronto and Hamilton Area Page 10

16 3.4.2 Negative Impacts on Small Businesses Small businesses will also be significantly impacted by the proposed parking space levy. Many anchor tenants (generally large retailers) at shopping centres may be exempt from the increased operating costs due to the proposed parking levy. Retail property owners will be forced to pass the additional operating cost from the levy to only small tenants. This will magnify the financial impact on small retail/commercial service businesses and could make those businesses economically unprofitable. Eventually, many of those businesses could be forced to shut down. This could have significant negative consequences to the region s economy A Drag on Long Term Economic Growth Increasing costs for businesses, especially for large manufacturers, in the GTHA region will unequivocally have a negative effect on economic development by pushing industrial development further out of the region. Manufacturers already face much higher land prices in the GTHA compared to other regions in Southwestern Ontario. The proposed parking space levy will further increase the development and operating costs of industrial properties. The AECOM/KPMG report outlines the potential business impact on its analysis of the parking space levy the economic distortions include changes in the behaviour of employers, who may move office locations to other regions in order to avoid the parking levy. 15 At the margin, it is very likely that some such behavioural changes will occur. It is of note that pushing investment and employment further out is contrary to provincial objectives of generally increasing the density of development, especially around transit infrastructure, and will promote, rather than prevent leapfrog development patterns. The 2013 Provincial Budget states that Tax reform in recent years has turned Ontario into one of the most investment friendly places to do business. 16 The proposed parking space levy will partially undo the Ontario Government s 15 AECOM and KPMG, Big Move Implementation Economics: Revenue Tools Profiles, March 2013, p Ontario Ministry of Finance, A Prosperous & Fair Ontario, 2013 Ontario Budget, May Business Parking Levy in the Greater Toronto and Hamilton Area Page 11

17 efforts of establishing Ontario as a business friendly market, as the business community may interpret the levy as another tax on business. Overall, the proposed parking space levy will have a negative impact on businesses and economic development in the GTHA, reducing economic competitiveness of the region. 3.5 Promotes Social Fairness and Equality The levy will be applied to businesses, not individuals. In case where individuals have to pay for the levy directly through charged parking, the levy will be applied uniformly, not depending on the driver s income level. Thus, the proposed Business Parking Levy has no benefit to social fairness and equality. This section has assessed the proposed parking levy against the five criteria set out by Metrolinx for selecting its preferred financing tools. It concludes that the levy does not satisfy the five selection criteria and, thus, will have a negative impact on businesses and economic development in the GTHA. 4 ISSUES RELATED TO ZONING BY LAW Metrolinx believes that the proposed Business Parking Levy also provides an important signal to municipalities, which typically set out minimum parking requirements in zoning by law. It is important that these municipalities do no set requirements that result in too much parking. 17 Furthermore, Metrolinx is committed to working with business owners, municipalities and the Province to decrease parking requirements to give businesses more flexibility to reduce the amount of off street parking they must provide. 18 It is economically beneficial to provide more flexibility on parking requirement under municipal zoning by laws i.e. fewer regulations mean less market distortion and more efficient land use. However, it is not 17 Metrolinx, Investing in Our Region, Investing in Our Future, May 2013, page Ibid, page 67. Business Parking Levy in the Greater Toronto and Hamilton Area Page 12

18 necessary to introduce a new levy to reduce parking regulations. Metrolinx can certainly initiate the regulation change without a new parking levy, which will cause market distortions and negatively impact long term economic development in the region. In addition, reducing parking requirement under zoning by laws might not result in fewer parking spots as many property owners are obligated to provide a certain amount of parking spaces under tenant agreements. As aforementioned, the number of parking spaces is determined by the market, which ultimately depends on drivers behaviours. Since the proposed parking levy will have less of an effect on drivers behaviour, the number of parking spaces is unlikely to reduce. At the end, a large share of the cost will be borne by property owners and businesses. 5 POTENTIAL REVENUE According to Metrolinx, the proposed business parking levy could generate $350 million per year. It is a quarter of the $1.4 billion per year previously estimated when Metrolinx presented the 11 shortlisted investment tools, at which time, the levy had a daily rate of $1 per space. The total expected revenue is estimated based on the assumption of approximately 4.1 million non residential off street parking spaces in the GTHA, which includes parking spots on institutional properties, such as hospitals and universities. However, under the final proposal, Metrolinx names the levy as Business Parking Levy and it is unclear if parking spots on institutional properties will also be subject to this levy. If they are not, then the total expected revenue will be significantly less than the $350 million estimated by Metrolinx. To estimate the total number of non residential off street parking spaces in the GTHA, Metrolinx used geographic information systems to establish an estimate of the land area used for parking by sampling certain areas and expanding it to the GTHA. 19 In addition, Metrolinx combined results from this assessment with other research. 19 AECOM and KPMG, Big Move Implementation Economics: Revenue Tools Profiles, March Business Parking Levy in the Greater Toronto and Hamilton Area Page 13

19 Altus Group estimated the number of such parking spaces, based on an array of factors likely to be related to the quantities of non residential off street parking, including the amount of non residential space, level of employment, and typical parking to employment and workspace ratios by sector (i.e. retail, office, industrial, institutional and others) across the GTHA. Data on parking garages, parking spaces at the TTC and Go Train Stations, and other unique properties were also incorporated to be consistent with Metrolinx s estimates. Based on Altus Group s analysis, there are some 3.0 million non residential off street parking spaces in the GTHA, which is considerably lower than the 4.1 million estimated by Metrolinx. In addition, the estimated 3.0 million non residential off street parking spaces also includes parking spots on institutional properties and at public transit stations, which are likely exempt under the revised proposal. Thus, the total number of parking spaces subject to the proposed levy will be even less. Altus Group has estimated the potential shares of the Business Parking Levy by region and by property type, based on the assessment data from MPAC and the estimated number of parking spaces by region and by sector: By region: More than 60% of the total expected revenue generated by the proposed parking space levy will be located in Toronto, primarily due to both the large number of parking spaces and much higher average assessment value in the city. It is followed by Peel Region (about 16.9%) and York Region (11.7%). The rest are roughly evenly distributed between Durham Region, Halton Region and the City of Hamilton (Figure 1); and By sector: The retail sector accounts for the largest share more than half of the total expected revenue will be generated by retail properties. It is followed by the office sector (32.3%) and the industrial sector (12.3%). The rest are related to parking garages (Figure 2). The results illustrate that: If the parking space levy were implemented according to the proposed structure, property owners in the City of Toronto would be affected the most; Business Parking Levy in the Greater Toronto and Hamilton Area Page 14

20 Businesses that occupy retail and office properties will bear the majority of the cost under the proposed parking levy; and Other major parking space owners, such as university, hospitals and public administration, will likely not be affected under the proposed Business Parking Levy. Under the revised proposal, Metrolinx is likely to exempt institutional properties from the Business Parking Levy. As the result, the funding burden of the investment in public transit would be further placed upon a narrower and narrower group of the community. This would essentially become a target tax on a smaller group of businesses. It would also increase the complexity of the structure of the proposed levy. Figure 1 Shares of Business Parking Levy* by Region, GTHA Percent Toronto Durham York Peel Halton Hamilton *Excluding parking spaces on institutional properties Source: Business Parking Levy in the Greater Toronto and Hamilton Area Page 15

21 Figure 2 Shares of Business Parking Levy by Property Type GTHA 60.0 Percent Retail Office Industrial Parking Garage Source: 6 LESSONS LEARNED FROM OTHER JURISDICTIONS Reports from Metrolinx and other government funded studies 20 have mentioned the existing experience in other jurisdictions, including Melbourne (Australia), Greater Vancouver (Canada) and Nottingham (United Kingdom). This section provides a detailed analysis on the Greater Vancouver experience since it is the most relevant to the Metrolinx s proposed Business Parking Levy. A review of the experience in the other international two cities is included in the Appendix. 6.1 Introduction of the Parking Levy Legislation was first enacted in 1998 giving the Greater Vancouver Transit Authority (now TransLink ) the authority to levy taxes on either parking spots or parking areas. The tax was originally envisioned to be on a per spot 20 Metrolinx, Revenue Tools: Parking Space Levy, 2013 and AECOM and KPMG, Big Move Implementation Economics: Revenue Tools Profiles, March Business Parking Levy in the Greater Toronto and Hamilton Area Page 16

22 basis, but was implemented on an area basis, when it became apparent that many businesses do not provide marked stalls. 21 The tax was implemented in January The original rate of $1.02 per sq. m. was reduced to $0.78 per sq. m. as the TransLink Board wanted to limit the total revenue from levy at $20 million. 22 The tax was designed to raise funds to help finance part of TransLink s 3 year, $1.9 billion road and transit expansion plan Structure of the Tax Although the initial concept for the levy in the Greater Vancouver Region is similar to the Metrolinx s proposal as a broad based levy on parking spaces, the structure of the TransLink levy underwent several transformations and changed at one point from being based on parking spots to being based on the parking area of a business. The move to levy based on area rather than spots stemmed from the difficulty of estimating the number of parking spaces in the region. This is the same difficulty Metrolinx will face, as acknowledged in the government funded AECOM/KPMG report. Similarly, initially the TransLink levy was applied to all non residential properties, as is the Metrolinx proposal. Over time, a wide array of exemptions were included in the increasingly complicated levy design as political issues related to increased taxation on properties such as schools and hospitals emerged. Despite the many alterations in design, the parking levy in Greater Vancouver was met with considerable opposition. Of the 29,600 assessment notices delivered by TransLink in December 2005, up to some 5,100 were appealed. 24 Various industry groups also spoke out against the levy. The provincial government eventually introduced legislation in November 2007 to completely scrap the unworkable idea of a parking levy and replace it with the replacement tax. 21 Transport Canada, TransLink Parking Tax Case Study, October Ibid. 23 Ibid. 24 Transport Canada, TransLink Parking Tax Case Study, October Business Parking Levy in the Greater Toronto and Hamilton Area Page 17

23 The replacement tax is a dedicated property tax, collected from both nonresidential (excluding institutional) and residential properties. Currently, the total amount of the tax is limited to $18 million per year, similar to the amount under the initial parking levy. 6.3 Lessons Learned There are a number of lessons learned from the failed experience of the TransLink s parking levy: It is administratively difficult to charge the levy based on the number of parking spots; and The levy causes a wide array of distortions and assessment appeals. 7 CONCLUSION On May 27, 2013, Metrolinx published its investment strategy for financing its planned transit infrastructure investment in the Greater Toronto and Hamilton Area (GTHA). One of the preferred investment tools is a new Business Parking Levy, which will be applied on all off street, nonresidential parking spaces. The levy is based on the current value assessment of parking spaces across the GTHA. However, a detailed analysis of this proposed new levy finds that the revised levy structure will be a poor choice for financing public transit investment: The proposed parking levy will fail to satisfy the five selection criteria set out by Metrolinx: The amount of revenue to be raised by the levy will be neither predictable nor durable and the long term performance of the levy as a financing tool for public transit investment is unproven; The administrative costs will be substantial and the process impractical to manually identify all business parking spaces in the region, and then, assess values of the parking portion of the properties; Business Parking Levy in the Greater Toronto and Hamilton Area Page 18

24 The actual effects of the levy on drivers behaviour are likely to be negligible as the cost of the levy is most likely to be absorbed by property owners and businesses, especially small businesses; The proposed parking space levy will have a negative impact on businesses competitiveness and economic development in the GTHA, reducing economic competitiveness of the region; and The levy will have little benefit to social fairness and equality. Moreover, the proposed Business Parking Levy fails to satisfy wellaccepted general principles of good taxation. It will be complex, unfair, and have negative impacts on businesses. In addition, it will cause a double taxation problem; Property owners and businesses in the City of Toronto will be affected the most over 60% of the expected revenue from the levy will be generated in the city; The retail and office sectors will bear most of the increased cost from the proposed levy; The potential annual revenue is likely to be less than the $350 million estimated by Metrolinx if institutional properties are exempt; and Experiences from the Greater Vancouver s parking levy illustrates that the levy is administratively difficult to implement, causes a range of problems and distortions. Overall, this report concludes that a parking space levy is a poor financing tool for planned public transit investment in the GTHA. However, it does, in principle, support the Government of Ontario s efforts to increase investment in public transit, which will benefit the GTHA s economy by reducing traffic congestion. Business Parking Levy in the Greater Toronto and Hamilton Area Page 19

25 Appendix A

26 Melbourne Congestion Levy Design The Melbourne Congestion Levy (MCL) was introduced in The City of Melbourne introduced an annual fee on long stay 25 parking stalls within their Central Business District (CBD). The area covers Melbourne s major commercial, retail, and entertainment business. The levy applies to nonresidential parking off street spaces that are leased or available for long periods in a day, including both paid and free parking. Purpose The primary aim of the MCL is to reduce congestion and encourage the use of public transit. By taxing only long stay parking within the CBD, the tax is essentially aimed at commuters that drive into the city and stay for the day. A secondary aim of the levy was to create more parking options for shoppers and visitors by increasing the number of short term spaces available within the city. Differences with the Metrolinx Proposed Levy The MCL was designed with specific and focused policy objectives in mind. As such, it is a much more targeted tax compared to the proposed parking space levy by Metrolinx: The MCL focuses on a specific geography, as opposed to the broadbased application of the levy to the whole GTHA; and The MCL focuses on a specific type of commuter (those that are commuting in for the day) and would have much less effect on short duration trips such as shoppers at retail malls. 25 Stalls available for use on an on going basis by the owner or another person under lease, or some other arrangement; or used for a period of four hours or more on weekdays commencing at or before 9:30 am and ending at or after 9:30 am. Business Parking Levy in the Greater Toronto and Hamilton Area Page A 1

27 Outcomes The MCL was not as successful in its objectives as was initially hoped. Some noted effects are: The number of trips to the levy area has held relatively steady, but has experienced a modal shift away from driving to public transit; 26 There was some shift in the distribution of parking supply from longstay to short stay parking. 27 However, research indicates that the parking levy only contributed marginally to this shift; 28 and The ineffectiveness of the tax is thought to be a result of the incidence of the tax, with consumers seeing little of the levy and thus having little incentive to alter their behaviour. 29 The MCL had some effect on its intended policy areas, but less so than was initially hoped for. The cost of the tax was not passed on to long stay drivers to much extent. This was due to absorption of the cost by business owners and some increase in short stay parking prices. 30 Nottingham Workplace Levy Purpose The Nottingham Workplace Levy (NWL) went into effect in October The purpose of the levy is to help raise funds for the expansion of the public transit network. Differences with the Metrolinx Proposed Levy The NWL is an annual fee that is levied on businesses that provide 11 or more workplace parking spots. This avoids small businesses and shopping centres, but can have significant effects on the margin. The fee has been 26 Hamer et al., Exploring Travel and Parking Impacts of the Melbourne CBD Parking Levy, Hamer et al., Parking Price Polices A review of the Melbourne Congestion Levy, Hamer et al., Exploring Travel and Parking Impacts of the Melbourne CBD Parking Levy, Hamer et al., Parking Price Polices A review of the Melbourne Congestion Levy, Hamer et al., Do Long Stay Parkers Pay the Melbourne Congestion Levy? Transport Policy, Business Parking Levy in the Greater Toronto and Hamilton Area Page A 2

28 raised to 334 per stall per year and applies to all stalls if the total number of stalls is 11 or more. This means that the 11 th stall costs 3,674 per year. Outcomes As the levy is still relatively new, quantified effects are hard to ascertain. Preliminary evidence shows that: Property consultancy firm, FHP, reported that some firms are considering relocating outside of the levy zone after the levy was introduced; 31 According to a survey conducted by the Derbyshire & Nottinghamshire Chamber of Commerce, it has cost Nottingham businesses an average of 8,000 to implement the workplace parking levy; 32 and Residents called for residential parking permits as the number of cars parked on residential street increased Nottingham Post. Nottingham firms in hunt to escape parking tax zone, June Nottingham Post, Parking levy sparks admin costs and is ʹindustrial suicide for cityʹ, October Nottingham Post, Fury as Nottingham s Workplace Levy Sparks Car Parking Row, July Business Parking Levy in the Greater Toronto and Hamilton Area Page A 3