When big companies chase tax cuts, small towns suffer

ANALYSIS: Cities and towns across Ontario are at the mercy of a tax system in which their revenue can simply evaporate overnight — taking community projects and jobs with them
By John Michael McGrath - Published on March 31, 2017
A provincial Assessment Review Board ruling has effectively punched a $2-million hole in Thunder Bay's budget. (Tony Webster/Creative Commons)

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The City of Thunder Bay is going to have to find another $2 million somewhere. On Monday, its city council voted to accept the ruling of the provincial Assessment Review Board, which slashed the paper value of several large corporate properties in the city, and thus the property taxes the city will be able to collect on them. So, poof, a whack of cash council will have to find elsewhere.

Blame the provincial property tax system. Once properties are assessed by the Municipal Property Assessment Corporation (MPAC), cities set their tax rates based on those assessments. But not so fast: property owners can appeal their assessments to a separate tribunal, the Assessment Review Board. For large corporations those appeals can result in major savings: successful appeals mean that money needs to be refunded back to businesses, which is how Thunder Bay ended up with a $2-million hole punched in its budget.

Thunder Bay is at least large enough that this is painful, but not a crisis. Last year, Kapuskasing was hit with a successful appeal by the forestry company Tembec — one which left the town with a $500,000 hole in its budget. That’s a trivial sum for a large city, but amounted to nearly five per cent of Kapuskasing’s property tax revenue. That would be the equivalent of Toronto needing to replace $200 million at the stroke of a pen, except worse: Kapuskasing is more reliant on property taxes than Toronto is, and its older population (and greater percentage of residents on fixed incomes) is more sensitive to tax increases.

Losing that money has meant layoffs, and the town has had to stop work on some major capital programs. A new aquatic centre that’s been planned for years is now looking for donations from the community to make up for public money that’s simply not there anymore.

Some cases do have merit: there are resource towns whose major employers can, legitimately, argue that the forestry sector has had a rough time in the last decade and their properties simply aren’t worth as much as they once were. But the problem is spreading outside of the pulp, lumber, and mining towns of the north and increasingly hitting larger cities.

It’s not a problem limited to small or northern towns, either. US Steel’s long restructuring process has cost both the city of Hamilton and Haldimand County millions of dollars, as the shuttered properties have had their assessed value cut by tens of millions of dollars.

Lynn Dollin, deputy mayor of Innisfil and president of the Association of Municipalities of Ontario, says her organization is increasingly seeing big box retailers filing routine appeals of their assessments.

“It’s ironic how many of these companies have television ads proclaiming their support for local sports, for example,” she says, “then they turn around and drive away the funding we need for arenas, sports programs, and all the things they’re supporting in their ads.

“If there’s a unique circumstance where, from time to time, an appeal is needed I can understand that. But this business of routine appeals as part of the business plan is incredibly hard on municipalities.”

According to the CBC, MPAC representatives told Thunder Bay councillors that big-box store property values are declining because it’s increasingly difficult for owners to find tenants for those large properties.

Vic Fedeli, Progressive Conservative finance critic and former mayor of North Bay, says the problem isn’t going away anytime soon. But part of the solution is simply getting the attention of policymakers in Toronto.

“The building we’re standing in sits in the middle of one of the world’s economic engines, so these problems simply won’t occur to people who haven’t been outside the GTA,” Fedeli told TVO.org at Queen’s Park Thursday. “This isn’t the beginning or end of this; it’s going to happen an awful lot from now on.”


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It’s a cruel turn for towns who bet their economic development strategies on big-box stores: at the time, councils who sought out the giant retailers were accused of hurting small and independent shops for the promise of new jobs and tax revenue development would bring. Now the companies those local leaders sought out are pushing for tax refunds that leave the affected communities even more dependent on residential property taxes.

Lynn Dollin says what municipalities need is some kind of predictability.

“MPAC likes to say they’ve got the best assessment process in the world, and that may even be so, but we need assessments that stick. These retailers who are making routine, yearly appeals to their assessment are doing it because they’re optimistic they’ll see their taxes cut,” says Dollin.

MPAC, for its part, told TVO.org  that it has consulted widely with municipalities, property owners, and other groups “early and often” to try and treat everyone in the process fairly. But at the end of the day it’s provincial policy to try and get tax assessments as close as possible to a real market value. Cathy Ranieri-Sweenie, spokesperson for MPAC, noted that valuing big-box stores is a problem outside of Ontario and in other countries as well.

Finance Minister Charles Sousa told TVO.org on Thursday that the government continues to work with municipalities and MPAC to refine the assessment process so that there are fewer successful appeals, but Dollin says the behaviour of large property owners hasn’t changed yet.

Another alternative would be for the government to make provincial tax dollars available to small municipalities that are particularly vulnerable to these kinds of shocks, but Dollin isn’t optimistic given the government’s drive to balance the budget this year.

Thinking larger, the government could start to wean municipalities off their dependence on the property tax altogether, by giving them access to provincial sales and income tax. That’s been a perpetual demand of municipalities big and small, but in this context it would also make them less dependent on the property values of a few large landholders.

The Liberals have promised a more modern form of tax sharing, most recently last summer. Until a concrete reform actually materializes, small municipalities are simply being set up to fail.

Photo courtesy of Tony Webster and licensed for commercial use under a Creative Commons licence. (See the uncropped version.)

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