Council Report # 2017-47 Title: Vacant Unit Rebate and Excess Land Tax Subclasses Review Prepared by: Glenn Dees, Director of Finance / Treasurer Reviewed by: Jennifer Moore, CAO Approved by: Jennifer Moore, CAO Strategic Plan: Sustainable Infrastructure and Services Council Date: July 19, 2017 Recommendation Whereas Council of the County of Northumberland received Report No. 2017-47 Vacant Unit Rebate and Excess Land Tax Subclasses Review; And Whereas the Province has implemented new flexibilities allowing municipalities to establish policies for vacant unit rebates and vacant and excess land subclass property tax reductions based on local needs; Now Therefore Be It Resolved That staff be authorized to review policy options for the rebate and property tax reduction programs and engage stakeholders to assess potential impacts; And Further That staff be directed to report back to Council quantifying policy options, impacts, public engagement findings and final recommendations. Purpose The purpose of this report is to acquire Council authorization to review policy options under new Provincial legislation providing new flexibilities for the vacant unit rebate and vacant and excess land subclass property tax reduction programs and engage stakeholders for potential impacts to property owners. Subsequent to this, staff will report back to Council with findings and final recommendations.
Background In conjunction with property tax reform implemented in 1998, the Province initiated legislation under section 364 of the Municipal Act requiring municipalities to provide for vacant unit rebates to properties in the commercial and industrial tax classes. In addition, section 313 sets forth requirements for property subclass tax rate reductions for vacant and excess lands. Prior to property tax reform, property owners paid property taxes on properties while business tenants paid business occupancy taxes to municipalities as a percentage of property taxation approximating 30% of property tax. Implementation of property tax reform resulted in the elimination of the business occupancy tax and a corresponding increase in property taxation. To ensure tax burden did not pass onto property owners with vacant unproductive properties in which the increased taxation could not be recouped, the implementation of vacant unit rebates was prescribed by the Province under the Municipal Act and supporting Regulations. Requirements under legislation required a rebate of 30% and 35% for vacant commercial and industrial spaces, respectively. The Province has reviewed the vacant unit rebate and vacant/excess land tax subclasses programs in consultation with municipal and business stakeholders. As a result of this, the Province has implemented new flexibilities for municipalities in 2017 to tailor these rebate programs based on local needs. Any changes will be implemented through Provincial Regulation by the Minister of Finance (MOF). Requirements for submitting requests to the MOF are highlighted in Attachment A MOF Vacancy Rebate and Reduction Program Changes Checklist. Consultations Consultations were held with the Northumberland Treasurers Committee to ensure concurrence amongst member municipal Treasurers to engage in a policy review of the current rebate and subclass tax reduction programs. As a result of this, the Northumberland Treasurers Committee provided for a report to Northumberland County Council dated July 7, 2017 recommending the phase-out of the vacancy rebate program (Attachment B Northumberland County Treasurers Committee Report; Vacancy Unit Rebate Program). Staff and the Northumberland Treasurers Committee have consulted with the Municipal Tax Equity (MTE) Consultants in regards to requirements and options under the new Provincial flexibilities for the programs. MTE will be conducting a detailed review of Northumberland County property tax policies in 2017 as authorized by County Council on March 15, 2017. Consultations have also occurred with the MOF. Legislative Authority/Risk Considerations Municipal Act, 2001 Sections 313, 364 and Ontario Regulation 325/01, amended to Ontario Regulation 210/05. Ontario Assessment Act. Discussion/Options The vacancy rebate program and the subclass tax rate reductions for vacant and excess lands had been mandatory under legislation until the recent review of these programs by the
Province. A letter from the Ministry of Finance addressed to Municipal Treasurers on December 21, 2016 indicated that a review of the current programs had been undertaken and that; the review was initiated in response to municipal concerns regarding the appropriateness of the lower tax level provided through these programs and any unintended implications this may have for local economies (Attachment C Ministry of Finance Letter Tax Policy and Assessment Update). The vacant rebate program was originally intended to compensate property owners for increased taxation burden as a result of property tax reform on vacant units were the increased cost could not be recouped through revenues in the form of rents or business operations. Since property tax reform in 1998, properties are assessed by the Municipal Property Assessment Corporation (MPAC). Assessed values form the basis for calculating property taxes as applied against municipal tax rates. The assessment methodology adopted by MPAC in the income valuation of commercial properties factors in vacancy and chronic vacancy which reduces assessment and subsequent tax burden. Similarly, obsolescence is factored in the assessment of industrial properties. Although the vacancy tax rebate provided for compensation to property owners initially with the transition occurring from property tax reform, assessment valuations have now been in place for almost twenty years. The continuation of vacancy rebates may no longer be required in that there may be duplication of what should be captured through current assessment valuation methodologies already. In some instances, vacancy rebates may provide an incentive for property owners to hold onto vacant properties for future uses or speculation; thereby, providing no productive use to communities and creating areas with chronic vacancies. Ongoing vacancies inhibit economic growth, job creation, investment, and tourism. The cost of vacancy rebates results in increased property taxation to recoup the expenditure of providing the rebate program. This is borne primarily by the residential tax class which comprises over 80% of assessment valuation within Northumberland County. In addition to the rebate program being a burden on municipal finances it is also administratively burdensome for municipal staff to manage and administer. The members of the Northumberland Treasurers Committee unanimously supported commencing the process for review of the current policy and engaging stakeholders to assess impacts on the phasing-out of the Vacancy Rebate Program (Attachment B Northumberland County Treasurers Committee Report; Vacancy Unit Rebate Program). As set out in Attachment D, the Council of the Municipality of Port Hope passed a resolution dated January 17, 2017 requesting the MOF to revise the program to explicitly provide for the option of opting out the vacancy rebate program. Staff proposes holding an open house and information session to engage local businesses and all ratepayers to inform of potential impacts. Staff will analyse the results of the public consultation and provide a formal recommendation on any proposed changes to Council. It is anticipated that results would be provided to Council in the fall of 2017 aligned with the timing of presentation of the findings from the overall County tax policy review. Any approved changes from Council will be submitted to the MOF for final approval.
Financial Impact The cost of providing vacancy rebates directly increases the amount of taxation that is required to meet municipal budget needs. The cost and number of rebates by municipality is summarized below: As displayed above, the additional municipal taxation that must be acquired to compensate for the cost of the vacancy rebates is significant for the lower and upper-tier portions totaling $269,207.88 and $295,152.02 for the years 2016 and 2015, respectively. This creates additional taxation burden on primarily the residential class based on the significant proportion of assessment within this class. The subclass tax rate reductions for vacant and excess land provides for a direct reduction in taxation as determined by MPAC via assessment classifications. Therefore, there is no budgetary impact for rebate expenditures as is the case with the vacancy rebate program. The reduction in taxation in these subclasses results in a direct reduction in property taxation to these subclasses and a shift of taxation burden onto the other property classes. Primarily this shift in taxation burden will be borne by the residential rate tax class as it represents the largest proportion of the tax assessment base. Member Municipality Impacts Member municipalities administer property taxation inclusive of the vacancy rebate program for the review of applications and processing of rebates to eligible property owners. In accordance with Provincial legislation, property taxation policy is governed by the County as the upper-tier municipality.
Conclusion/Outcomes That staff receive authorization to review policy options under new Provincial legislation allowing for new flexibilities under the rebate and property tax reduction programs, to engage stakeholders for potential impacts inclusive of the local business community and to report back to Council with findings and a final recommendation. Attachments: A - MOF Vacancy Rebate and Reduction Program Changes Checklist B - Northumberland County Treasurers Committee Report; Vacancy Unit Rebate Program C - Ministry of Finance Letter; Tax Policy and Assessment Update D - Council of the Municipality of Port Hope Vacancy Rebate Resolution