There are many ways of measuring the effect of property taxes on the residents of a municipality. All too often, news media use the budget bottom line, dollars, as their sole measure and feel impelled to describe it as a tax increase, ignoring population change, inflation and debt.
Currently, the City of Ottawa (Ontario Canada) defines a constant municipal tax as one which nominally results in the same number of dollars paid by the same taxpayers. When the value of all properties rises the same amount, taxes do not change. When the number of assessable properties increases, total dollar taxes go up in proportion of the assessed value of new properties to existing ones. However, all changes to existing properties that require a building permit are treated as improvements (for example, repairs following a fire), allowing a small increase in 'constant' property taxes. This formula is not provincially mandated, but nonetheless is commonly agreed upon by most Ontario municipalities. It allows 'constant' taxes to go up at a slightly greater rate than that of population. But, there is no allowance for inflation or change in debt in this model.
Longer ago than I care to remember, I chaired the Recreation & Parks Board of the Township of Cumberland. When it came to establishing a baseline for the R&P budget for the Township, I made the following proposal: that the best measure of municipal 'constant tax' is the portion of tax of the total income of all residents of the township. The reason: even though municipal taxes are based upon the capital value of property, people in fact pay taxes out of income, not capital. This page applies that philosophy to the amalgamated City of Ottawa.
In Canada, Revenue Canada provided the aggregate taxable income of all residents reporting from a postal address. (In Cumberland's case, these were then half of Orleans, Cumberland (village), Sarsfield, Navan and Vars.) This measure was established by an agency distinct and separate from the municipality. All residents of Canadian municipalities file an income tax return in order to obtain tax credits. So, it took into account local population changes, local employment changes, and local inflation. Today, the data is assembled and published by the Conference Board of Canada.
Here are the numbers for the amalgamated City of Ottawa:
|4.0% reduction over 6 years|
|34.3% increase over 3 years|
|6.5% increase over 6 years|
In summary, until 2007 the amalgamated city was maintaining its financial health and reducing effective taxation, seeming to fulfill the promise that amalgamation would bring efficiencies compared to a dozen separate municipalities. What's more, the province of Ontario downloaded additional expenses to municipalities during this period by increasingly underfunding provincially-mandated programs. For example, in 2001 provincial grants funded almost 31% of social housing expenditures; by 2005, this had decreased to 24%. The total funding gap between provincially mandated programs and provincial funding increased by about $16 million by 2006, equivalent to 1.7% in taxes. The amalgamated city was actually able to reduce real taxation under its control by about 10% over these 7 years.
Regrettably, that improvement ceased in 2008 as an inexperienced mayor lost control of council. Since the return of the current mayor (a pre-amalgamation councillor for 6 years and mayor for 3), taxation growth has been 1% per year, mostly due to capital funding for a light rail transit system to reduce congestion of the downtown core.
other notes on community matters
- "Total taxes available for municipal purposes" in the Consolidated Financial Statements for the city excludes education which is not under City control, but includes fire and police costs, transit subsidies and special levies.
- Effective taxation equals total taxes plus the change in "Net debt end of year". For 2000-2005, this debt was reported as "Total municipal position", for 2006-2007 as "Net financial liabilities". ("Long term debt" includes solely capital expenditures; "end of year" also includes liabilities for employee pensions etc.)
- Populations are estimates by the City planning department as of 31 December the previous year; an official census is held only every 5 years.
- The per capita income data from the Conference Board of Canada includes an estimate of the 'underground' economy, the income not declared to the CRA. Understandably, data meticulously hidden from the tax men is difficult to obtain by anyone, so this data is not totally consistent from year to year. But, it's the best I can find.
- Percentages are rounded to the nearest 0.1%. Remember that changes compound: a 10% increase followed by another 10% increase is 1.1*1.1=1.21, a 21% overall increase.
I thank the Conference Board of Canada and the City of Ottawa Finance Department for generous assistance in providing and interpreting the data.