TheCounty PRINCE EDWARD COUNTY * ONTARIO

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TheCounty PRINCE EDWARD COUNTY * ONTARIO Committee of the Whole January 25, 2018 Farm Tax Ratio Analysis Executive Summary: At the Committee of the Whole meeting held on November 16, 2017, the Prince Edward Federation of Agriculture (PEFA) made a delegation requesting that Council reduce the farm tax ratio from the current 25% of the residential rate to 20% for 2018 and beyond. Council received PEFA s delegation and asked staff to provide a report in January 2018 examining the possible implications of reducing the farm tax ratio to 20% of the residential rate. Staff is recommending that Council maintain the farm tax ratio at 25% of the residential rate. Lowering the farm tax ratio would shift additional property tax burden to other classes, primarily the residential tax class. Reducing the farm tax ratio is not a fair and equitable policy decision for all ratepayers in the County of Prince Edward. The foundation of the property tax system in Ontario is based on the assessed market value of the property in question, not the ability to pay or services consumed. Staff recommends that Council base its tax ratio decisions on overall policy objectives, rather than in response to shifts in property value assessments. Promoting and supporting agriculture is important for maintaining The County s rural and historic character, but staff recommends that Council pursue other more appropriate policy tools than a farm tax ratio reduction to advance this strategic priority. Recommendations: THAT the report of the Corporate Services and Finance Commission dated January 25, 2018 regarding the farmland tax ratio analysis be received; THAT the farm tax ratio remain at 25% of the residential tax ratio; and, THAT this ratio be used for the Tax Tools and Policy Report and Tax Ratio By-law that staff will present at the Council meeting on February 13, 2018. Purpose: The purpose of this report is to provide Council with information and an analysis regarding the request to reduce the farm tax ratio and receive any further feedback or directives from Council to inform the tax ratio by-law that staff will present to Council on February 13, 2018. Background: County Council must pass a by-law each year to set the property class tax ratios. Tax ratios distribute the tax burden between property classes. When setting the tax ratios, Council can either:

Maintain the previous year s property class tax ratios for the current tax year. Establish a new tax ratio for any class that is closer to or within the ranges of fairness set out by the Province of Ontario. Adopt a revised revenue neutral tax ratio to mitigate the impact of property value reassessment. Prior to 1998, the provincial government offered the Farm Tax Rebate Program. Eligible farmers could submit an application to receive a reimbursement of 75% of the farm taxes paid. A series of reforms resulted in the elimination of the Farm Tax Rebate Program in 1998. To help offset the financial impact on farmers, the provincial government introduced the farm tax class with a mandated ratio of 25% of the residential property tax class. In effect, the costs associated with the former Farm Tax Rebate Program were redistributed to taxpayers in other property classes. And in rural and small urban centres where farmland is most prevalent, the cost of providing the rebate at the municipal level was borne primarily by the residential property class. Since the initial reforms in 1998, the province has granted municipalities the flexibility to provide further tax relief to farmland property owners by setting the farm tax ratio lower than the mandated 25% of the residential property tax class. The Prince Edward Federation of Agriculture (PEFA) asked Council in 2016 to reduce the farm tax ratio beginning in 2017 to offset the increase in assessed values of farm properties. Property assessments within the farm property class for Prince Edward County in 2016 experienced an average annual increase of 27.5% since the 2012 reassessment. Between 2016 and 2020, the average farm property will increase 110%. Council opted to keep the farm tax ratio at 25% of the residential ratio for 2017. PEFA has made another request that Council consider reducing the default farm tax ratio to 20% in 2018 and beyond. Analysis/Comment: Council must carefully consider a number of factors when reviewing and setting the tax ratios for the municipality. A reduction in the farm tax ratio would result in a shift of the property tax burden to other property tax classes. In rural areas where farmland is most prevalent, a majority of this burden would fall to the residential tax class, which makes up approximately 90 per cent of the tax assessment in Prince Edward County. At the November 16, 2017 Committee of the Whole meeting the Prince Edward Federation of Agriculture requested that the farm tax ratio be reduced to 20% going forward. The impact of this request using Class 1 Farm Land on a per acre basis is provided below:

Year Assessed Value Per Acre 25% Tax Ratio - Taxes per Acre 20% Tax Ratio (2018, 2019, 2020) - Taxes per Acre Tax Reduction Tax Reduction per Acre ($) per Acre (%) 2016 3,425 $ 7.57 N/A N/A N/A 2017 4,525 $ 10.04 N/A N/A N/A 2018 5,625 $ 12.44 $ 10.00 $ (2.44) -19.6% 2019 6,725 $ 14.87 $ 11.96 $ (2.91) -19.6% 2020 7,825 $ 17.31 $ 13.92 $ (3.38) -19.5% Shifting this additional tax burden to the residential property class would disproportionately impact low-income earners and people living on fixed incomes. Many of these people already face financial challenges due to increases in household expenses such as increasing mortgage payments, electricity, water and sewer charges. Effective July 1, 2017, The County increased water and sewer rates by 5%, and effective January 1, 2018 increased rates by 5%.The impact of using a 20% tax ratio for the farm tax class is as follows: Tax Class 2018 2019 2020 Total - 3 Years Farm (154,552) -19.6% (181,509) -19.6% (208,362) -19.5% (544,423) -19.6% Residential 141,226 0.4% 165,832 0.5% 190,337 0.6% 497,395 0.5% All Other Property Taxes 13,326 0.4% 15,677 0.5% 18,026 0.6% 47,029 0.5% TOTAL - - - - The property tax system in Ontario is based on the assessed market value of the property in question, not the ability to pay or services consumed. The underlying principle of the assessment-based system is that the amount of property taxation paid is indicative of the assessed values of properties relative to all others. Similar to farm properties in 2016, waterfront properties saw significant increases in valuations during the reassessment cycle in 2008. Municipalities did not have tax policy tools at their disposal to compensate waterfront property owners for bearing a greater proportion of the municipal tax levy. This group of property owners did not receive tax relief because the assessments reflected defendable market values. Changes by the Municipal Property Assessment Corporation (MPAC) have ensured farmland assessments reflect market reality. MPAC s current farm valuation procedures exclude redevelopment values from the assessment of farmland. Other changes MPAC implemented to strengthen the accuracy and equity of farm valuations for the 2016 assessment update include: Improved farm sale verification process. MPAC undertook significant analysis and only used sales of farmland sold to farmers to determine farmland valuations. Farm verifications included a standard letter and questionnaire sent to new farm owners, and a mandatory review of vacant farmland sales that are 10 acres or greater.

Comprehensive review of vacant farmland sales back to January 2008. Increasing the sales period from 3-5 years to 6-8 years to determine the 2016 values. Simplified geographic areas were used to adjust for local conditions. Farm neighbourhoods have been combined, resulting in a reduction from 228 to 167 neighbourhoods. This enabled MPAC to use more sales transactions in its determination of the farmland rates. MPAC also reviewed the values for farms in bordering neighbourhoods to ensure equity in the valuations. Property owners still have the right to have their assessment reviewed if they do not agree with it. They have until April 2, 2018 to file a Request for Consideration with MPAC to have their 2018 current value assessment on their farm property reviewed. Shifts in relative tax burdens are unavoidable with a property tax system based on assessed market values. Increases in the current value assessment of farmland will result in a greater percentage of the total levy coming from the farm tax levy between 2017 and 2020. Over the longer term, though, staff anticipate that the farm tax levy as a percentage of the total tax levy will decrease as residential market values continue to rise significantly during the next assessment cycle (2021 to 2025). Reducing the farm tax ratio as a short-term solution to changing market value assessments may also result in additional requests for preferential tax ratio treatment from ratepayers within other property classes. This precedent-setting measure would serve to further shift the tax burden to the residential property class. The province has set ranges of fairness for the calculation of tax ratios. In 1998, the province also established target ranges or ranges of fairness for tax ratios, with the objective to achieve a level of fairness between property classes for all jurisdictions in Ontario. The ranges of fairness represent what the province determines to be a fair level of taxation for the non-residential property classes relative to the tax burden on the residential class. The ranges are as follows with Prince Edward County s current ratios: County of Prince Edward 2017 Tax Ratio Summary Range of Fairness Provincial Threshold Ratio Class PEC 2017 Tax Ratio Lower Limit Upper Limit Applicable to PEC Residential 1.0000 1.0000 1.0000 Farm 0.2500 0.0000 0.2500 Managed Forest 0.2500 0.2500 0.2500 Multi-Residential 1.4402 1.0000 1.1000 2.0000 No New Multi-Residential 1.0000 1.0000 1.1000 Commercial 1.1125 0.6000 1.1000 1.9800 No Landfill 0.6000 0.6000 1.1000 Industrial 1.3895 0.6000 1.1000 2.6300 No Pipeline 0.5394 0.6000 0.7000

Currently, multi-residential, commercial and industrial property tax classes in The County all exceed the upper limit of the range of fairness. Expressed as a percentage of the farm tax rate, the tax rates for these property classes are: Property Class Tax Ratio Tax Rate - % of Farm Tax Residential 1.0000 400% Farm 0.2500 100% Managed Forest 0.2500 100% Multi-Residential 1.4402 576% New Multi-Residential 1.0000 400% Commercial 1.1125 445% Landfill 0.6000 240% Industrial 1.3895 556% Pipeline 0.5394 216% When setting tax ratios, consideration should be given to neighbouring and comparator municipalities to determine if adjustments are warranted. In regards to farm properties, all comparator municipalities have a ratio of 25% except Lennox and Addington. L&A adopted a ratio of 23% for the 2017 tax year. At the same time, Lennox and Addington committed to phased increases over the following three years in order to return the farm tax ratio to 25% by 2020 (23% in 2017, 23.67% in 2018, 24.33% in 2019, and 25% in 2020). In 2016, the Eastern Ontario County Treasurers drafted a position paper on farm tax ratios for municipalities in Zone 6. The group recommended that the farm tax ratio not be lowered, noting that the MPAC farm property assessment is fair and equitable. The treasurers also pointed out that changes in the market have provided farm property owners with large capital gains on their properties. A few other Ontario municipalities have lowered their farm tax ratios. They include: Halton Region (Upper Tier) 20% Durham Region (Upper Tier) 20% City of Hamilton (Single Tier) 20% City of Ottawa (Single Tier) 20% Municipality of Chatham-Kent (Single Tier) 22% City of North Bay (Single Tier) 15% Town of Caledon (Single Tier) 16.88% County of Brant (Single Tier) 24% Most of the above are large, urban municipalities with a proportionately smaller amount of current value assessment in the farm tax class. These municipalities with larger and broader assessment bases compared to rural municipalities can lower their farm tax ratio with a less significant shift in taxation burden to the residential property class.

Additional Considerations: Lowering the farm tax ratio would apply to all eligible farm properties across The County. However, municipalities now have new tax policy flexibility to provide more targeted support for small-scale agri-food businesses on farms. In the 2017 budget, the Government of Ontario pledged to give municipalities the authority to reduce property tax rates for small-scale value-added and commercial activities on farms should they choose. By introducing this optional tax subclass, the Government of Ontario aims to encourage job growth in the agriculture sector and support rural economies. The Government of Ontario, in its fall 2017 economic statement, provided more details about this new optional tax subclass for on-farm, value-added activities: The tax subclass will be optional for 2018 taxation and subsequent taxation years. The optional tax subclass would tax the first $50,000 of qualifying assessed value at 25% of the local commercial or industrial tax rate. The optional tax subclass will only apply to on-farm processing and commercial facilities assessed under $1 million. The agri-food industry is an important sector of Prince Edward County s local economy. There are more than 40 wineries and a growing number of craft breweries in the area and, increasingly, small-scale farmers across the county are processing their fruits, vegetables, and grains and selling the value-added products at commercial facilities on their farms. Promoting and supporting value-added agriculture is an objective with the County of Prince Edward s Corporate Strategic Plan. The municipality is working to achieve this goal in a number of ways, and this new authority from the Government of Ontario has the potential to further support The County s efforts in this area. Similar to considering requests to reduce the farm tax ratio, Council must weigh the impact this decision would have on other property tax classes. Creating a new tax subclass for on-farm, value-added activities would also result in a shift of the tax burden to other property tax classes. However, a decision to introduce the optional tax subclass better aligns with the overall strategic goals of the municipality, more so than reducing the farm tax ratio in response to increases in property values following reassessment. Staff is awaiting further details regarding the mechanism for reducing property tax rates for small-scale, value-added and commercial activities on farms. Once that information is received, staff will present it to Council for its consideration. The County currently exempts farm buildings as defined in the Building Code Act from the payment of development charges. Staff is recommending to Council that this exemption continue in the new development charges by-law. While Council has not lowered the farmland tax ratio in previous years, the municipality pursues a number of initiatives aimed at advancing the agriculture and agri-business priorities contained in the Corporate Strategic Plan. Some examples include:

Active workforce development and matching for farm labour through PEC Job Fair and other initiatives Promotion of agri-tourism and value-added agricultural products through marketing efforts Participation in regional agri-asset inventory with Ontario East Economic Development Commission Winter Survival Workshops with training applicable to agricultural businesses Development of tourist corridors through rural beautification standards and incentives Partnerships with community groups to hold and promote agricultural events Actively working with Quinte Local Immigration Partnership/Quinte Immigration Services and regional partners to connect immigrants with food and agriculture skills to employers in the agri-food industry. Corporate Strategic Plan/Priority Implications: The recommendations of this report support the following Corporate Strategic Objective(s) 1. Financial Sustainability - Ensuring financial sustainability with a financial plan and reserves that all us to achieve our financial objectives; Financial Implications: The reduction of the farm tax ratio will result in a shift of the property tax burden to the residential and other property tax classes. The impact is summarized in Attachment 1. Policy Implications: None identified for the recommendations of this report. Notice/Consultation: None identified for the recommendations of this report. Other Options: Should Council wish to reduce the tax ratio for the farm property class, staff recommends Council approve the following motion: THAT the report of the Corporate Services and Finance Commission dated January 25, 2018 regarding the farmland tax ratio analysis be received; THAT for the 2018 taxation year the farm tax ratio be reduced to 20% of the residential tax ratio and the farmland tax ratio be reviewed annually ; and

THAT the reduced tax ratio of 20% be used for the Tax Tools and Policy Report and Tax Ratio By-law being brought forward at the February 13, 2018 Council meeting. Attachments: 1. Attachment 1 Tax Ratio Summaries Prepared by: Mark Kerr January 10, 2018 Communications and Media Coordinator Reviewed by: Amanda Carter January 19, 2018 Director of Finance and Treasurer CAO Approval: A If James Hepburn January 19, 2018 Chief Administrative Officer

1/19/2018 10:22 Prince Edward County Tax Distribution - Farm Tax Ratio Analysis Years 2016 through 2020 The following Chart provides the tax burden by property tax class using a 25% Tax Ratio for Farms and the tax burden if a 20% Tax Ratio for Farms was implemented for 2018, 2019 and 2020: Total Taxation - Farm Tax Rate at 25% (1) Tax Class 2016 Actual 2017 Actual 2018 2019 2020 Farm $ 508,184 1.6% $ 649,035 1.9% $ 786,793 2.2% $ 926,365 2.5% $ 1,065,937 2.8% Residential 29,090,533 90.2% 30,338,871 90.1% 31,668,136 89.3% 32,653,987 89.1% 33,639,837 88.8% All Other Property Taxes 2,665,577 8.3% 2,666,935 7.9% 2,988,123 8.4% 3,087,016 8.4% 3,185,909 8.4% TOTAL $ 32,264,293 100.0% $ 33,654,841 100.0% $ 35,443,052 100.0% $ 36,667,367 100.0% $ 37,891,683 100.0% Total Taxation - Farm Tax Rate - 2016 & 2017-25%, 2018 to 2020-20% (2) Tax Class 2016 Actual 2017 Actual 2018 2019 2020 Farm $ 508,184 1.6% $ 649,035 1.9% $ 632,241 1.8% $ 744,856 2.0% $ 857,574 2.3% Residential 29,090,533 90.2% 30,338,871 90.1% 31,809,362 89.7% 32,819,818 89.5% 33,830,174 89.3% All Other Property Taxes 2,665,577 8.3% 2,666,935 7.9% 3,001,448 8.5% 3,102,693 8.5% 3,203,935 8.5% TOTAL $ 32,264,293 100.0% $ 33,654,841 100.0% $ 35,443,052 100.0% $ 36,667,367 100.0% $ 37,891,683 100.0% Tax Shift between Tax Classes, At 25% compared to PEFA 20% Request Tax Class 2016 Actual 2017 Actual 2018 2019 2020 Farm $ (154,552) -19.6% $ (181,509) -19.6% $ (208,362) -19.5% Residential - - 141,226 0.4% 165,832 0.5% 190,337 0.6% All Other Property Taxes - - 13,326 0.4% 15,677 0.5% 18,026 0.6% TOTAL 1) 2016, 2017 and 2018 Compiled using Actual Tax Rates - 2019 and 2020 Compiled using 2018 Tax Rate, Assessment Values as per MPAC 2) Tax Rate Adjusted for 2018, 2019 and 2020 to a rate necessary to raise the same amount of taxes as 1)