Varcoe: Calgary businesses welcome tax shift, but say it’s ‘just one poke in the eye, instead of two’
|calgaryherald.com 03 Dec 2019 at 15:29|
They had spent the past three years adopting one-time programs to soften the blow of massive tax hikes on businesses outside of the core — caused by the downtown office skyscrapers losing a significant chunk of their value during the downturn — but it just kicked the problem down the road.
Even with its decision to redistribute about $60 million of the tax burden onto homeowners next year, council is still facing heat from business leaders who think the city needs to go further, find more spending cuts in its $4.1-billion budget — and they worry Calgary hasn’t yet found a long-term resolution to a daunting dilemma.
“I definitely don’t think they should be high-fiving themselves at all at city hall,” said Annie Dormuth of the Canadian Federation of Independent Business.
Calgary Chamber of Commerce CEO Sandip Lalli appreciated council’s decision to have homeowners share more of the overall tax tab, moving the city closer in line with other municipalities.
But she thinks the city lacks a focus on lowering spending, uncovering greater efficiencies or selling off city-owned land as part of a broader plan.
“On the property tax system, we got some wins,” Lalli said.
“The reduction of costs and increased effectiveness of the government, that was our second ask . . . and that’s where we fell short.”
After approving a new city budget Friday evening, councillors agreed to change the split of how much of the overall tax burden homeowners and businesses pay.
Residential owners currently shoulder 49 per cent of municipal taxes, while commercial property owners pay 51 per cent.
With the decision, homeowners will now be responsible for 52 per cent of the tax load next year and businesses will pick up 48 per cent.
Mayor Naheed Nenshi noted Monday the shift was exactly what the chamber and local business improvement areas were seeking for next year.
“It’s not going to be the perfect answer for everyone, but it certainly helps on the structural question,” he said.
It will also be an unpopular decision for homeowners seeing their tax bills rise.
But for thousands of businesses already hit with mammoth increases in the past three years — and many struggling to survive a prolonged downturn — it’s the right call.
The issue has been dragging on since 2017, after the value of downtown towers plunged with the collapse of energy prices, leaving more than one in four office buildings empty in the core.
These downtown buildings have collectively lost more than $14 billion of value since 2015 during the annual property tax reassessment system — a revenue-neutral process for municipalities — leaving the city to redistribute $250 million in taxes to commercial property owners outside the core.
Hefty tax hikes, sometimes eclipsing 100 per cent, have left many business operators in a tough spot. This year alone, about 1,300 commercial properties initially faced hikes of 30 per cent or more.
What’s compounded the problem has been council’s inability to make a long-term decision to tackle the issue and provide businesses with certainty.
Instead, the city opted for one-time assistance programs to cap some of the biggest tax hikes for the year, although it won’t eliminate the longer-term tax increases once these initiatives wind down.
Nenshi said Friday council had initially expected these one-time programs would work once the downtown situation levelled out, but assessed values in the core didn’t stabilize as expected.
Councillors have now agreed to shift more of the burden across 500,000 homeowners, rather than keep piling the tax pain onto about 14,000 commercial accounts, threatening small businesses and jobs.
Property taxes on a typical Calgary home will rise by 7.5 per cent next year, or about $150 a year, with the majority of the increase triggered by the tax shift.
City officials say the non-residential tax rate will drop by an estimated 11.3 per cent in 2020, although the impact varies widely for different types of commercial properties.
An average retail strip mall is still slated to see its taxes rise by 14 per cent next year, retail properties along 17th Avenue S.W. are expected to see increases of almost 13 per cent, and taxes for neighbourhood shopping centres will climb by about 18 per cent.
However, taxes on AA class office buildings in the downtown are expected to drop by 19 per cent, while suburban office space will see a drop of almost four cent.
Business operators such as Maureen Macdonald, whose company CMS Real Estate owns six properties in Calgary, call this tax shift a move in the right direction, but think more action is necessary.
“As a small business, if I can’t afford to run my business, we have to make cuts. The city should do the same,” she said.
Nenshi said council is also considering a temporary program for the next year or two that would again cap the increases on the hardest-hit properties, although it would cost less than in previous years.
But at some point, these short-term programs will end and the full bill will come due.
“It kind of feels like just one poke in the eye, instead of two pokes in the eye,” said Good Earth Cafes’ CEO Michael Going, whose business has 23 locations in the city.
“They have to have the courage to make deep, meaningful, longer-term cuts. They have to do that.”