CITY OF KAMLOOPS Council Budget Meeting Agenda March 14, 2017, at 9:00 am in Council Chambers at 7 Victoria Street West, Kamloops, BC, V2C 1A2

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1 CITY OF KAMLOOPS Council Budget Meeting Agenda March 14, 2017, at 9:00 am in Council Chambers at 7 Victoria Street West, Kamloops, BC, V2C 1A2 1. REPORTS Chief Administrative Officer 1.1 Review of Assessment Class Tax Rates Recommendation: Page 2-11 That Council approve Council Policy No. GGL-27, Class 4, Major Industry Tax Rates (Attachment A ). Page 1 of 11

2 March 9, 2017 REPORT TO THE CHIEF ADMINISTRATIVE OFFICER FROM THE FINANCE DEPARTMENT ON REVIEW OF ASSESSMENT CLASS TAX RATES PURPOSE To provide Council with the results of a review of assessment class tax rate data and a draft policy recommended by the Industrial Tax Base Task Force to set forth a plan to address the high Class 4, Major Industry municipal tax rates in Kamloops. COUNCIL STRATEGIC PLAN This report supports Council's goals and objectives regarding: Economy - Diversify, strengthen and fortify our economy through partnerships and effective land use planning. A review of assessment class tax rates is an objective under Business Development. SUMMARY As identified in the Council Strategic Plan, the purpose of this report is to bring forward the results of research with regard to the assessment tax class rates across the province as they compare to the City s rates. The data shows that the City s Residential (Class 1) and Business (Class 6) rates fall in the low to middle range across the province while Light Industry (Class 5), and Major Industry (Class 4) rates are high. Administration and the Industrial Tax Base Task Force have met with the business community and major industry over the past few months. A draft of Council Policy No. GGL-27, which is recommended by the Industrial Tax Base Task Force, puts forth a plan to reduce the Class 4, Major Industry rates over time (Attachment A ). RECOMMENDATION: That Council approve Council Policy No. GGL-27, Class 4, Major Industry Tax Rates (Attachment A ). DISCUSSION BC Assessment is responsible for establishing the assessed value of properties in BC. It places each property in one or more of nine classes, and is typically based on the property s type or use. Municipal zoning does not determine property class; however, it may be a factor in some cases. Kamloops assessments include the following classes, as defined by BC Assessment: Page 2 of 11

3 Page 2 Class 1, Residential - single-family residences, multiple-family residences, duplexes, apartments, condominiums, nursing homes, seasonal dwellings, manufactured homes, some vacant land, farm buildings, and daycare facilities. Class 2, Utilities - structures and land used for railway transportation, pipelines, electrical generation, transmission utilities, or telecommunications transmitters. This property class does not include gathering pipelines, offices, or sales outlets. Class 4, Major Industry - land and improvements (buildings and structures) of prescribed types of industrial plants, including lumber and pulp mills, mines, smelters, large manufacturers of specified products, ship building, and loading terminals for sea-going ships. Class 5, Light Industry - property used or held for extracting, processing, manufacturing, or transporting products, including ancillary storage. Scrap metal yards, wineries, and boat-building operations fall within this category. Exceptions include properties used for the production or storage of food, non-alcoholic beverages, and retail sales outlets, which fall into Class 6. Class 6, Business Other - property used for offices, retail, warehousing, hotels, and motels all fall within this category. This class includes properties that do not fall into other classes. Class 8, Recreational Property, Non-profit Organization - includes two very different categories: Recreational Land land used solely as an outdoor recreational facility for specific activities, such as golf, skiing, tennis, public swimming pools, waterslides, amusement parks, marinas, and hang gliding (improvements on the land, such as a clubhouse, fall into Class 6) land in a rural area that is part of a parcel used for overnight commercial accommodation that exists predominantly to facilitate specific outdoor recreational activities, such as hunting, fishing, and kayaking (improvements on the land most likely fall within Class 6 [e.g. a hotel]) Non-Profit Organization Land and Improvements property used or set aside for at least 150 days per year as a place of public worship or as a meeting hall by a non-profit, fraternal organization. The 150 days cannot include activities with paid admission or the sale/consumption of alcohol. additionally, the 150 days needs to be in the year ending on June 30 of the calendar year preceding the calendar year for which the assessment roll is being prepared Class 9, Farm - to qualify as farm for assessment purposes, the land must produce a prescribed amount of qualifying primary agricultural products for sale, such as crops or livestock (farm buildings come within Class 1). Page 3 of 11

4 Page 3 The majority of the assessed value within the City falls within Class 1, Residential. Class 2017 Assessment Roll Occurrences Assessment % of Total 1 Residential 34,295 $11,882,893, % 2 Utilities ,058, % 3 Supportive Housing % 4 Major Industry 16 84,547, % 5 Light Industry 84 78,366, % 6 Business 1,859 2,051,217, % 8 Recreational/Non-profit ,597, % 9 Farm 333 5,807, % 37,056 $14,189,488,884 In setting the municipal tax rates across the spectrum of classes, municipal councils across the province must decide how the total tax bill should be shared. One comparison is to look at the percentage of the assessed value compared to the percentage of total taxes collected. In Kamloops, the residential properties consist of 83.7% of the assessed value but contribute only 62% of the municipal property taxes. In contrast, Class 4, Major Industry, is assessed at 0.60% of the value, but contributes 5.96% of the property taxes. Property Taxes vs. Assessed Value % 83.74% 80.00% 60.00% 40.00% 20.00% 0.00% 62.01% 1 Residential 27.39% 6 Commercial 14.46% 0.60% 0.55% 0.51% 0.14% 5.96% 4 Major Industry 1.62% 2.78% 0.24% 5 Light Industry 2 Utilities Other Property Taxes Assessed Value Page 4 of 11

5 Estimated municipal Property Taxes REVIEW OF ASSESSMENT CLASS TAX RATES March 9, 2017 Page 4 As requested by Council, the Finance Department has collected the tax rates from a variety of cities to support Council s Strategic Plan objective to review the assessment class tax rates. The following data is collected from the Provincial Ministry of Community, Sport and Cultural Development (MCSCD) financial statistics, which include the tax rates for all BC municipalities. For residential (Class 1) rates, it is difficult to compare tax rates directly due to the large variation in property assessment values; however, the MCSCD collects data that calculates an estimate of taxes paid based on each municipalities average household assessed value. The chart below shows this comparison. 3,000 Estimated Municipal Property Taxes for Average House (Class 1) 2,500 2,000 1,500 1, Page 5 of 11

6 Page 5 One way to compare non-residential tax rates across various classes is to compare tax rates (also known as mill rates) as a multiple of the residential rates. This method removes the variation in assessed value from the comparison. In 2016, the Kamloops tax rates for the various classes and as a multiple of residential rates were as follows: City of Kamloops Multiple of Residential Tax Rate Class 4, Major Industry Class 5, Light Industry Class 6, Business Kamloops Class 4, Major Industry rates are 13.5 times the residential rate, meaning that a major industry property pays 13.5 times the property taxes that a home with the same value pays Major Industry (Class 4) as multiple of Residential (Class 1) Kamloops Coquitlam Delta Maple Ridge Prince George Average Port Coquitlam Kelowna Victoria Langley Nanaimo Saanich Chilliwack Page 6 of 11

7 Page 6 In comparing the actual tax rates for Major Industry, Kamloops stands out as one of the highest as well. The 2016 tax rate for Class 4, Major Industry, in Kamloops was 74.00, compared to a low of 9.43 in Saanich and in Kelowna. The five-year trend for Class 4 tax rates for Kamloops and other selected cities are shown on the graph below Major Industry (Class 4) Tax Rates for select municipalities Kamloops Prince George Maple Ridge Delta Coquitlam Average Kelowna Nanaimo Victoria Saanich Langley Page 7 of 11

8 Page 7 In addition to reviewing the Class 4 rates, the Finance Department also reviewed the comparison rates for Class 5, Light Industry and Class 6, Business. For Light Industry, Kamloops is the second highest, but the gap from the average is not as widespread as Class Light Industry (Class 5) as multiple of Residential (Class 1) 4.50 Coquitlam Kamloops Port Coquitlam Prince George Victoria Delta Average Langley Maple Ridge Nanaimo Saanich Kelowna Chilliwack Page 8 of 11

9 Page 8 The graph below shows the comparison of Class 6, Business, as a multiple of residential rates for selected municipalities. Kamloops is below the average for this class with a multiple of 2.56, compared to the average of 2.82 times the residential rate Business (Class 6) as multiple of Residential (Class 1) 4.50 Coquitlam Saanich Port Coquitlam Delta Victoria Lan Average Maple Ridge Kamloops Nanaimo Kelowna Prince George Chilliwack As the data shows, the industrial rates in Kamloops are higher than the average. In particular, Class 4, Major Industry, is significantly higher than the rate in comparable cities. After reviewing this data, the Industrial Tax Committee has recommended to Council a policy, which sets forth a plan to reduce the Class 4, Major Industry municipal tax rates over time. Page 9 of 11

10 Page 9 Tax Rate Policy Background In 2016, the municipal tax rate for Class 4, Major Industry, was 74.00, which equated to $6.2 million. This proposed policy recommends that the tax rate and amount collected from Class 4 not exceed the 2016 levels, and over time, that it be decreased until it is at least at the average rate. To facilitate this reduction, it is recommended that any growth in assessed value in Class 4, Major Industry, or in Class 2, Utilities, be applied specifically to Class 4 rates, rather than to the overall tax rate. The recommended policy is as follows: To reduce the tax rate for Class 4, Major Industry, to the average rate, the following formulas shall be used to calculate the maximum rate for Class 4 each year: The rate shall not exceed the 2016 tax rate of The maximum taxation revenue collected from Class 4 shall not exceed $6.2 million. This includes any increases in market or non-market growth within this class. New growth shall have the effect of reducing the tax rate. In future years, all market and non-market growth from Class 4 and Class 2 shall be applied to reduce the tax rate for Class 4, Major Industry. By setting a maximum value for both the tax rate and the taxes collected, there is an incentive for industry to modernize and update their facilities without a corresponding increase in taxes as their assessed values increase. Following the above policy, the 2017 tax rate for Class 4 would be calculated as in order to keep the total collected no higher than $6.2 million. This reduction in the municipal tax rate (after accounting for a small amount of growth in the class) would shift approximately $183,000 in 2017 to other classes. FINANCIAL IMPLICATIONS By adopting this policy, the Class 4 municipal tax rate will gradually be reduced by adjusting the percentage of tax paid by the other classes. K. Humphrey, CPA, CA Finance Director Approved for Council Consideration: KH/ts/lm Attachment Page 10 of 11

11 Attachment "A" City of Kamloops COUNCIL POLICY SUBJECT: CLASS 4, MAJOR INDUSTRY TAX RATES NO. GGL-27 FUNCTION: GENERAL GOVERNMENT - LEGISLATIVE DATE: MARCH 14, 2017 The intent of this policy is to set up a strategy to set the tax rates for Class 4 with the goal of bringing the major industry (Class 4) municipal tax rate in Kamloops in line with the provincial average*. This policy recommends that the tax rate and amount of municipal property tax collected from Class 4, major industry do not exceed the 2016 levels and, over time, that the rate be decreased until it is at least at the provincial average rate. To facilitate this reduction, it is recommended that any growth in assessed value in Class 4 (Major Industry) or in Class 2 (Utilities) be applied specifically to Class 4 rates, rather than to the overall tax rate. The policy is as follows: To reduce the tax rate for Class 4, Major Industry to the average rate, the following formulas shall be used to calculate the maximum rate for Class 4 each year. 1. The rate shall not exceed the 2016 tax rate of The maximum taxation revenue collected from Class 4 shall not exceed $6.2 million. This includes any increases in market or non-market growth within this class. New growth shall have the effect of reducing the tax rate. 3) In subsequent years, all growth (market and non- market) growth from Class 4 and Class 2 shall be applied to reduce the tax rate for Class 4, Major Industry. * Average is calculated using the 12 municipalities identified for comparison in the Council Remuneration Policy, No. GGL-3 (Delta, Langley, Victoria, Maple Ridge, Saanich, Port Coquitlam, Nanaimo, Chilliwack, Prince George, Coquitlam, Kelowna, Kamloops). S:\DCS\Jobs (c3)\265475_class 4 Tax Rates_REP\265518_GGL-27 DRAFT_POL.docx March 8, 2017 Page 11 of 11